M/s. Plas Pack Synthetic Pvt. Ltd., Ahmedabad V. The ACIT, (OSD), Circle-5, Ahmedabad

ITA 1808/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0960 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 20-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: MANISH M RAJVAIDYA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.1808/AHD/2013 / ASSTT. YEAR: 2009-2010 M/S.PLAS PACK SYNTHETICS P.LTD. 24, VIVEK NAGAR SOCIETY NR.VIJAY CROSS ROAD NARANGPURA AHMEDABAD 380 013. PAN : AADCP 7867 Q VS ACIT(OSD), CIR.5 AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI MANISH M. RAJVAIDYA, AR REVENUE BY : SHRI O.P. MEENA, SR.DR / DATE OF HEARING : 22/07/2016 / DATE OF PRONOUNCEMENT: 01/08/2016 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF THE LD.CIT(A)-XI, AHMEDABAD DATED 30.5.2013 PASSED FOR THE ASSTT.YEAR 2009- 10. 2. SOLITARY GRIEVANCE OF THE ASSESSEE RELATES TO PA RT DISALLOWANCE OUT OF INTEREST PAID TO THE PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S PAID INTEREST ON THE LOANS AVAILED FROM 30 PERSONS. THE INTEREST PAYMEN T RANGES IN BETWEEN 9% TO 24%. THE LD.AO OBSERVED THAT SOME OF THE PERSONS T O WHOM INTEREST WAS PAID FALLS WITHIN THE AMBIT OF SECTION 40A(2B) OF T HE ACT. THEREFORE, HE CONCLUDED THAT PAYMENT OF INTEREST AT THE RATE OF 1 5% IS REASONABLE. ITA NO.1808/AHD/2013 2 4. ON APPEAL, THE LD.CIT(A) DIRECTED THE AO TO ALLO W DEDUCTION TO THE EXTENT OF PAYMENT OF INTEREST AT THE RATE OF 18% TO THE PERSONS WHO ARE COVERED UNDER SECTION 40A(2)(B) OF THE ACT. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 40A(2)(B) CONTEMPLATES T HAT IF AN ASSESSEE INCURS EXPENDITURE FOR AVAILING THE SERVICES OF PERSONS WH O ARE CLOSELY ASSOCIATED WITH THE ASSESSEE-COMPANY OR THE MANAGEMENT, AND MA DE PAYMENT TO SUCH PERSONS IN EXCESS TO THE MARKET RATE, THEN, THAT EX TRA PAYMENT WILL NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IN OTHER WOR DS, IF SERVICE IS BEING AVAILED BY AN ASSESSEE FROM THE PERSON FALLING UNDE R SECTION 40A(2)(B), AND THE SIMILAR SERVICE WAS AVAILED FROM OPEN MARKET ON A LESSER RATE, THEN, THE DIFFERENCE BETWEEN THOSE RATES COULD NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IN THE PRESENT CASE, THE ASSESSEE HAS A VAILED LOAN FROM THE PERSONS COVERED UNDER SECTION 40A(2)(B) AND PAID INTEREST A T THE RATE OF 24%. THUS, THE AO WAS OF THE VIEW THAT PAYMENT OF INTEREST AT THE RATE OF 24% IS ON THE HIGHER SIDE, THAN THE ONE AVAILED FROM THE OPEN MAR KET. INSOFAR AS THE OBSERVATIONS OF THE REVENUE AUTHORIT IES THAT THE COMMERCIAL RATE OF INTEREST IN THAT YEAR WAS NOT MO RE THAN 18% IS CONCERNED, I AM OF THE VIEW THAT THIS OBSERVATION IS A REASONABL E ONE, BUT, I FIND THAT THE ASSESSEE HAD MADE PAYMENT OF INTEREST AT THE RATE O F 24% TO ONE PATEL NITABEN PRAKASHBHAI AND PATEL RAMANLAL HARGOVANDAS. THE LD .FIRST APPELLATE AUTHORITY HAS DELETED THE DISALLOWANCE MADE BY THE AO, OVER AND ABOVE, THE PAYMENT OF 15% TO THESE PERSONS. IN OTHER WORDS, T HE LD.FIRST APPELLATE AUTHORITY HAS ACCEPTED THE RATE OF INTEREST AT 24% AS A REASONABLE RATE, BECAUSE, THESE TWO PERSONS ARE NOT COVERED UNDER SE CTION 40A(2)(B) OF THE ACT. IT CAN BE REASONABLY INFERRED IN THE CASE OF THE ASSESSEE THAT PAYMENT OF ITA NO.1808/AHD/2013 3 INTEREST TO THE PERSONS COVERED UNDER SECTION 40A(2 )(B) AT 24% WAS REASONABLE RATE. MORE SO, THE REVENUE HAS NOT CHAL LENGED THE ORDER OF THE LD.CIT(A) WHERE THE PAYMENT OF INTEREST AT THE RATE OF 24% TO TWO PERSONS WHO ARE NOT COVERED UNDER SECTION 40A(2)(B) HAS BEE N ACCEPTED AS REASONABLE BY THE LD.CIT(A). TAKING A GUIDANCE FROM THIS FIND ING, IN THE CASE OF THE ASSESSEE, I AM OF THE VIEW THAT NO DISALLOWANCE DES ERVES TO BE MADE. THE AO FAILED TO BRING ON RECORD, THE MARKET RATE PREVALEN T IN THIS ASSESSMENT YEAR WAS LOWER. THEREFORE, I ALLOW THE APPEAL OF THE ASSESS EE, AND DELETE THE DISALLOWANCE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 1 ST AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 01/08/2016