Infinity Interiors Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-4(3), Ahmedabad

ITA 1778/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85685 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: D K PARIKH

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , .. ' , #$ # % BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 1778/AHD/2011 [ASSTT. YEAR: 2007-08] INFINITY INTERIORS P. LTD. I-A, SURESHA APARTMENTS NAVRANGPURA, AHMEDABAD. PAN : AAACN 7891 A VS ITO, WARD - 4(3) AHMEDABAD. &' / (APPELLANT) )* &' / (RESPONDENT) ASSESSEE(S) BY : SHRI D.K. PARIKH, AR REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 05/02/2015 / DATE OF PRONOUNCEMENT: 13 /02/2015 #+/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-VIII, AHMEDABAD DATED 4.4.2011 FOR THE ASSTT.YEAR 2007-08. 2. SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE C IT(A) ERRED IN CONFIRMING THE ORDER OF THE AO DISALLOWING EXCESS I NTEREST OF RS.3,97,800/- BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE MADE INTEREST PAYMENT OF RS.23,86,785/- TO THE FOLL OWING PERSONS: SR.NO. NAME OF PERSON AMOUNT OF INTEREST 1. KETAN P. MISTRY RS.4,35,131/- 2. KETAN R. SHAH RS.14,32,488/- ITA NO.1778/AHD/2011 2 3. JATIN P. MISTRY RS.1,53,100/- 4. N.K. ENTERPRISES RS.3,66,066/- TOTAL RS.23,86,785/- HE OBSERVED THAT THE ASSESSEE PAID INTEREST AT THE RATE OF 18% ON THE AMOUNT BORROWED FROM PERSON SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT, WHICH IS HIGHER THAN THE RATE OF INTEREST PREV AILING IN OPEN MARKET AT 15%. THEREFORE, HE DISALLOWED INTEREST AT THE R ATE OF 3% HOLDING IT BE EXCESSIVE, AND THEREBY MADE A DISALLOWANCE OF RS .3,97,800/-. 4. ON APPEAL, THE CIT(A) CONFIRMED ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE CLAIM OF HIGHER RATE OF INTEREST AT 18%. 5. BEFORE US, THE AR OF THE ASSESSEE FILED A COPY O F ORDER OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF VIPUL Y. MEHTA VS. ACIT, ITA NO.869/AHD/2010 ORDER DATED 9.7.2010 AND SUBMITTED THAT IN THIS CASE ALSO THE ASSESSMENT YEAR INVOLVED WAS ASSTT.YEAR 20 07-08 AND THE TRIBUNAL HELD THAT THE PAYMENT OF INTEREST AT THE R ATE OF 18% PER ANNUM TO THE RELATIVES ON UNSECURED LOAN CANNOT BE SAID TO BE EXCESSIVE OR UNREASONABLE AND DELETED THE DISALLOWA NCE MADE BY THE AO UNDER SECTION 40A(2)(B) OF THE ACT. FURTHER, H E RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. ADITYA MEDISALES LTD., TAX APPEAL NO.559 OF 2009 ORDER DAT ED 4.5.2000 WHEREIN THE ASSESSMENT YEAR INVOLVED WAS A.Y.1997-9 8 AND THE HONBLE HIGH COURT OBSERVED THAT BOTH THE CIT(A) AND THE TR IBUNAL ON APPRECIATION OF EVIDENCES ON RECORD FOUND THAT THE REVENUE HAS NOT BEEN ABLE TO MAKE OUT A CASE FOR APPLYING THE PROVI SIONS OF SECTION 40A(2)(B) OF THE ACT THAT THE INTEREST ON UNSECURED BORROWINGS IS ALWAYS HIGHER THAN THE RATE OF INTEREST PAID TO THE BANK OR FINANCIAL INSTITUTIONS, FROM WHERE THE LOANS RAISED ARE SECUR ED LOANS, AND ACCORDINGLY ACCEPTED THE INTEREST PAID AT THE RATE OF 24% PER ANNUM ON ITA NO.1778/AHD/2011 3 THE UNSECURED LOANS. THEREFORE, THE HONBLE GUJARA T HIGH COURT CONFIRMED THE FINDINGS OF THE CIT(A). 6. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE ASSESSEE PAID INTEREST ON UNSECURED LOANS TAKEN FROM THE RELATIVES OF THE ASSESSEE AT THE RATE OF 18%, AND T HEREBY, THE CLAIMED DEDUCTION OF RS.23,86,785/-. THE AO DISALLOWED RS. 3,97,800/- OUT OF THE SAME, HOLDING THAT THE INTEREST PAID AT 18% WAS HIGHER THAN THE PREVAILING MARKET RATE OF 15% , AND THEREBY MADE DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT. 8. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E AO. 9. WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD E ITHER BY THE AO OR THE CIT(A) TO SHOW THAT INTEREST PAID BY THE ASS ESSEE AT THE RATE OF 18% ON UNSECURED LOAN WAS HIGHER THAN THE PREVAILIN G MARKET RATE. ON THE OTHER HAND, THE AR OF THE ASSESSEE HAS PLACED B EFORE US THE ORDER OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF VIPUL Y. MEHTA VS. ACIT (SUPRA) WHEREIN THE TRIBUNAL HELD THAT THE INTEREST PAID AT THE RATE OF 18% ON UNSECURED LOANS TO RELATIVES WAS NOT EXCESSI VE OR UNREASONABLE. STILL FURTHER, THE ASSESSEE HAS FILE D BEFORE US THE ORDER OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AD ITYA MEDISALES LTD. VS. CIT (SUPRA) WHEREIN THE HONBLE COURT CONFIRMED THE ORDER OF THE TRIBUNAL HOLDING THAT THE INTEREST PAID AT THE RATE OF 24% ON UNSECURED LOAN WAS REASONABLE. THEREFORE, IN OUR CONSIDERED OPINION, THE DISALLOWANCE MADE BY THE AO OUT OF THE INTEREST PAY MENTS TO RELATIVES BY ASSUMING THE RATE OF 15% , IS NOT JUSTIFIED, AND DISALLOWANCE SO MADE IS UNSUSTAINABLE. HENCE, WE SET ASIDE THE ORDERS O F THE LOWER ITA NO.1778/AHD/2011 4 AUTHORITIES AND DELETE THE DISALLOWANCE OF RS.3,97, 800/- MADE OUT OF INTEREST EXPENSES, AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 13 TH FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER