The DCIT(OSD)Range-I, Ahmedabad V. M/s. Cama Hotels Limited, Ahmedabad

ITA 1834/AHD/2012

• Counselvise Citation: 183420514 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 23-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: M J SHAH
• Keywords: Fair market value; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMADABAD , BEFORE: SHRI G. D. AGARWAL, VICE PRESIDENT SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO. 1834/AHD/2012 ASSESSMENT YEAR :2009-10 DCIT (OSD), RANGE-1, AHMEDABAD V/S . M/S. CAMA HOTELS LTD., KHANPUR, AHMEDABAD - 380001 PAN NO. AABCC5432G (APPELLANT) .. (RESPONDENT) BY REVENUE SHRI NARENDRA SINGH, SR. D.R. /BY ASSESSEE SHRI M. J. SHAH, A.R. /DATE OF HEARING 11.09.2015 /DATE OF PRONOUNCEMENT 29.09.2015 O R D E R PER : RAJPAL YADAV, JUDICIAL MEMBER REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A)-6, AHMEDABAD, DATED 25.06.2012 PASSED FOR A.Y.2009-10. 2. IN THE FIRST GROUND OF APPEAL, REVENUE HAS PLEAD ED THAT LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION OF EMPLOYEES CONTRI BUTION TO PF DESPITE THE ITA NO. 1834/AHD/12 A.Y. 09-10 (DCIT(OSD) VS. M/S. CAMA HOTELS LTD.) PAGE 2 FACT THAT SAME WAS PAID AFTER DUE DATE AND HENCE TO BE TREATED AS INCOME U/S.2(24)(X) R.W.S. 36(1)(VA) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME ON 27.09.2009 DECLARING TOTAL INCOME AT NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U /S.143(2) OF THE INCOME TAX ACT WAS ISSUED ON 25 TH SEPTEMBER, 2010, WHICH WAS DULY SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALS TO THE ASSESSING OFFICER THAT ASSESSEE HAS COLLECTED THE EMPLOYEES CONTRIBUTION BUT FAILED TO MAKE DEPOSITS OF SUCH AMOUNTS IN THE PF ACCOUNTS OF THOSE EMPLOYE ES WITHIN TIME LIMIT PROVIDED UNDER THE PF AND ESI ACT. THEREFORE, THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF RS.1,81,414/-. 4. ON APPEAL, LD. FIRST APPELLATE AUTHORITY HAS DEL ETED THE DISALLOWANCE ON THE GROUND THAT THESE AMOUNTS HAVE BEEN PAID BEFORE THE DUE DATE OF FILING OF RETURN AND THEREFORE IT IS TO BE ALLOWED TO THE ASS ESSEE. 5. AT THE VERY OUTSET, LD. SR. D.R. SUBMITTED THAT ISSUE IN DISPUTE IS SUQARELYCOVERED AGAINST THE ASSESSEE BY THE DECISIO N OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION REPORTED AT (2014) 366 ITR 170 (GUJ.). HONBLE HIGH COURT HAS HELD THAT IF THE ASSESSEE FAILED TO DEPOSIT THE AMO UNTS REPRESENTING EMPLOYEES CONTRIBUTION TO PF & ESI ACCOUNTS WITHIN THE TIME L IMIT PRESCRIBED UNDER THESE ACTS, THEN ASSESSEE WILL NOT BE ENTITLED FOR DEDUCT ION. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT, WE ALLO W THIS GROUND OF APPEAL AND REVERSE THE FINDING OF CIT(A). THE ORDER OF LD. AS SESSING OFFICER IS RESTORED ON THIS ISSUE. 6. IN THE NEXT GROUND, THE GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.21,83,749/-. ITA NO. 1834/AHD/12 A.Y. 09-10 (DCIT(OSD) VS. M/S. CAMA HOTELS LTD.) PAGE 3 7. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE CO MPANY HAD PAID INTEREST OF RS.32,43,885/- TO PERSON COVERED U/S.40A(2)(B) OF T HE INCOME TAX ACT. HE FURTHER OBSERVED THAT INTEREST HAS BEEN PAID @ 15% IN THE CASE OF CAMA MOTORS PVT. LTD. AND @ 16% IN THE CASE OF R.J. CAMA & CO. PVT. LTD. THE LD. ASSESSING OFFICER HAS ALLOWED THE INTEREST PAYMENT @12% AND DISALLOWED THE BALANCE. THE DISALLOWANCE HAS BEEN COMPUTED BY THE ASSESSING OFFICER AS UNDER: DISALLOWANCE IS COMPUTED AS UNDER R.J. CAMA & CO. PVT. LTD. INTEREST @ 16% RS.23,50,167/- INTEREST @ 12% RS.17,62,625/- DIFFERENCE RS. 5,87,542/- CAMA MOTORS PVT. LTD. INTEREST @ 16% RS. 4,78,846/- INTEREST @ 12% RS. 3,83,077/- DIFFERENCE RS. 95,769/- ACCORDINGLY, EXCESS PAYMENT OF INTEREST OF RS.6,83, 311/- IS DISALLOWED. 8. ON APPEAL, LD. CIT(A) HAS DELETED THE DISALLOWAN CE. WE FIND FROM THE COMPUTATION OF INCOME IN THE ASSESSMENT ORDER THAT ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.6,83,311/-. HOWEVER, IN THE GRO UND, REVENUE HAS TAKEN A FIGURE OF RS.21,83,749/-. THIS FIGURE DOES NOT EME RGE FROM THE IMPUGNED ORDERS. IT IS AN ERRONEOUS MENTION OF THE GROUND. 9. WITH THE ASSISTANCE OF LD. SR. D.R., WE HAVE GON E THROUGH THE RECORD CAREFULLY. SECTION 40A(2)(B) CONTEMPLATES THAT IF SOME UNDUE BENEFIT IS BEING EXTENDED BY THE ASSESSEE TO THE PERSONS MENTIONED I N SUB-CLAUSE (2)(B) OF SECTION 40A OF THE INCOME TAX ACT ON ACCOUNT OF THE IR ASSOCIATION WITH THE ASSESSEE, THEN THE DEDUCTION CLAIMED FOR THAT BENEF IT OUGHT TO BE DISALLOWED TO ITA NO. 1834/AHD/12 A.Y. 09-10 (DCIT(OSD) VS. M/S. CAMA HOTELS LTD.) PAGE 4 THE ASSESSEE. IN OTHER WORDS, IF THE ASSESSEE CAN AVAIL THE FACILITY FROM THE OPEN MARKET AT A LOWER PRICE, THEN SIMILAR FACILITY AVAI LED FROM THE PERSONS COVERED U/S.40A(2)(B) THEN THAT EXCESS PAYMENT WOULD NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. THE QUESTION BEFORE US IS WHAT WAS THE FAIR MARKET VALUE OF INTEREST PAID BY THE ASSESSEE ON THE LOANS OBTAINED FROM THE PERSONS COVERED U/S.40A(2)(B). ACCORDING TO THE ASSESSING OFFICER, THE LOANS OUGHT TO HAVE BEEN TAKEN AT THE INTEREST RATE OF 12% AND NOT THE INTER EST RATE OF 15 OR 16%. THE LD. COUNSEL FOR THE ASSESSEE, AT THE VERY OUTSET, SUBMI TTED THAT THE BANK INTEREST RATE WAS IN BETWEEN 15 TO 16.08%. THE ASSESSEE OUGHT TO HAVE PROVIDED A SECURITY FOR THE LOANS TAKEN FROM THE BANK. THESE ARE UNSEC URED LOANS. IT HAS AVOIDED A LOT OF FORMALITIES BY TAKING LOANS FROM THE ASSOCIA TE CONCERN. IN OUR OPINION, THE PAYMENT OF INTEREST AT A LITTLE HIGHER RATE TO THE PERSONS EVEN IF COVERED U/S.40A(2)(B) CANNOT BE TERMED AS EXORBITANT WHEN T HE FAIR MARKET VALUE OF SUCH INTEREST COST IS BEING CONSIDERED. THE ASSESSEE HA S PAID INTEREST COMMENSURATE WITH THE INTEREST RATE PREVAILING IN THE OPEN MARKE T. AN ORDER OF THE ITAT, AHMEDABAD IN ITA NO.869/AHD/2010 RENDERED IN CASE O F VIPUL Y. MEHTA VS. ACIT HAS BEEN BROUGHT TO OUR NOTICE, WHEREIN TRIBUN AL HAS UPHELD THE ALLOWANCE OF THE INTEREST RATE @ 18% PER ANNUM TO T HE RELATIVES ON UNSECURED LOAN. CONSIDERING ALL THESE ASPECTS, WE ARE OF THE VIEW THAT LD. FIRST APPELLATE AUTHORITY HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIVE. ASSESSEE HAS NOT EXTENDED ANY UNDUE BENEFIT TO THE PERSONS COVERED U /S.40A(2)(B) OF THE INCOME TAX ACT. THIS GROUND OF REVENUES APPEAL IS REJECT ED. 10. IN THE NEXT GROUND OF APPEAL, REVENUE HAS PLEAD ED THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY ASSESSING OF FICER U/S.2(22)(E) OF THE ACT. 11. THE BRIEF FACTS OF THE CASE ARE THAT ON PERUSAL OF THE ACCOUNTS, IT REVEALS TO THE ASSESSING OFFICER THAT ASSESSEE HAS RECEIVED AN AMOUNT OF RS.62,06,638/- FROM CAMA MOTORS PVT. LTD. AND RECEIVED RS.1,69,38, 020/- FROM R. J. CAMA & CO. PVT. LTD.. THE LD. ASSESSING OFFICER HAS CONSI DERED THESE LOANS AS DEEMED ITA NO. 1834/AHD/12 A.Y. 09-10 (DCIT(OSD) VS. M/S. CAMA HOTELS LTD.) PAGE 5 DIVIDEND IN THE HANDS OF ASSESSEE. HE ACCORDINGLY MADE ADDITION OF RS.2,63,12,188/- U/S. 2(22)(E) OF THE INCOME TAX AC T. ON APPEAL, LD. CIT(A) HAS DELETED THE ADDITION. 12. THE LD. COUNSEL FOR THE ASSESSEE, AT THE VERY O UTSET, SUBMITTED THAT ISSUE IN DISPUTE IS CLEARLY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN CASE OF CIT VS. DAI SY PACKERS (P.) LTD. [2013] 40 TAXMANN.COM 480 (GUJARAT). HE PLACED ON RECORD A COPY OF THE ORDER OF HONBLE GUJARAT HIGH COURT. LD. COUNSEL FOR THE AS SESSEE TOOK US THROUGH PAGE NOS. 9 &10 OF THE CIT(A)S ORDER. HE POINTED OUT T HAT ASSESSEE IS NOT A SHARE HOLDER OF EITHER CAMA MOTORS PVT. LTD. OR R.J. CAM A & CO. PVT. LTD. SECTION 2(22)(E) CAN BE APPLIED IF THE ASSESSEE IS REGISTER ED SHARE HOLDER OF THE LENDER COMPANY AND AVAILED SOME AMOUNTS WHICH CAN BE TREAT ED AS DEEMED DIVIDEND. THE LD. ASSESSING OFFICER HAS TREATED THE ALLEGED L OAN AS DEEMED DIVIDEND ON THE GROUND THAT THE DIRECTORS ARE HOLDING MORE THAN 10% OF THE SHARE CAPITAL OF CAMA MOTORS PVT. LTD. AND R. J. CAMA & CO. PVT. LT D. LD. SR. D.R. RELIED UPON THE ORDER OF ASSESSING OFFICER. 13. ON DUE CONSIDERATION OF THE RECORD, WE FIND THA T LD. FIRST APPELLATE AUTHORITY HAS RECORDED A FINDING OF FACT THAT ASSES SEE IS NOT THE SHARE HOLDER OF BOTH THE COMPANIES. THE LD. CIT(A) HAS FOLLOWED TH E DECISION OF SPECIAL BENCH OF ITAT IN CASE OF ACIT VS. BHAUMIK COLOUR PVT. LTD . REPORTED IN 118 ITD 1. THIS DECISION OF ITAT HAS BEEN UPHELD BY THE HONBL E BOMBAY HIGH COURT. HONBLE DELHI HIGH COURT HAS ALSO HELD IN CASE OF C IT VS. ANKITECH (P.) LTD. IN [2012] 340 ITR 14 THAT THE ASSESSEE SHOULD BE A SHA RE HOLDER IN THE LENDER COMPANY AND SUCH HOLDING SHOULD BE MORE THAN 10% OF THE VOTING RIGHTS, ONLY THEN SECTION 2(22)(E) WOULD BE ATTRACTED. HONBLE JURISDICTIONAL HIGH COURT HAS ALSO CONCURRED WITH HONBLE DELHI HIGH COURT. THER EFORE, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COUR T IN CASE OF CIT VS. DAISY ITA NO. 1834/AHD/12 A.Y. 09-10 (DCIT(OSD) VS. M/S. CAMA HOTELS LTD.) PAGE 6 PACKERS (P.) LTD. (SUPRA), WE DO NOT FIND ANY ERROR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF APPEAL IS REJECTED. 14. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 29.9.2015 SD/- SD/- ( G. D. AGRAWAL) (RAJPAL YADAV) VICE PRESIDENT JUDI CIAL MEMBER