M/s. Ajmani Leasing & Finance Ltd., V. The DCIT,

ITA 186/LKW/2010

• Counselvise Citation: 18623714 RSA 2010
• Duration Of Justice: 4 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-06-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 15-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K RAM
• Assessee Lawyers: P K KAPOOR
• Keywords: Principle of natural justice; Diversion of income

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 186 /LKW/201 0 ASSESSMENT YEAR:20 05 - 06 M/S AJMANI LEASING & FINANCE LTD. BUS STATION ROAD, LAKHIMPUR KHERI. PAN:AACCA6858 VS. DY.C.I.T., SITAPUR. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P. K. KAPOOR, C.A. RESPONDENT BY SHRI R. K. RAM, D. R. DATE OF HEARING 16/06/2014 DATE OF PRONOUNCEMENT 0 4 /07 /2014 O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT (A), BAREILLY DATED 24 /1 1 /20 09 FOR ASSESSMENT YEAR 200 5 - 20 06 . 2. IN THIS APPEAL , THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT PAYMENT OF INTEREST @ 15% PER ANNUM ON THE BORROWINGS MADE FROM THE DIRECTORS AND THEIR FAMILY MEMBERS WAS EXCESSIVE, KEEPING IN VIEW THE PROVISIONS OF SECTION 40A(2)(A) READ WITH SECTION 40A (2)(B) OF THE 'ACT' AND ON THAT GROUND, IN SUSTAINING A DISALLOWANCE OF RS.9,17,09 1/ - OUT OF INTEREST . 2. BECAUSE FOR THE PURPOSE OF 'COMPARISON', THE MARKET RATE OF INTEREST AS WAS PREVALENT AT THE RELEVANT TIME WAS LIABLE TO BE TAKEN INTO CONSIDERATION AND MERELY BECAUSE THE 'APPELLANT' HAD BEEN ABLE TO ARRANGE FUNDS FROM VARIOUS PERSONS, AT A CHEAPER RATE OF INTEREST, IT CANNOT BE HELD THAT 15% RATE OF INTEREST WAS EXCESSIVE 2 WITHIN THE MEANING OF SECTION 40A(2)(B) OF THE ACT, SO AS TO ATTRACT DISALLOWA NCE THERE UNDER . 3. BECAUSE THE 'PAYEES' THEMSELVES ARE BEING ASSESSED TO TAX AND PAYMENT OF INTEREST TO THEM @ 15% PER ANNUM (AS HAD DULY BEEN DISCLOSED BY THEM), WHICH WAS OTHERWISE REASONABLE AND IN CONFORMITY WITH THE PRACTICE PREVALENT IN THE MARKET, COULD NOT HAVE BEEN DISALLOWED, INTER ALIA, ON THE GROUND THAT IT WAS MEANT FOR DIVERSION OF INCOME. 4. BECAUSE IN ANY CASE, LOOKING TO THE NATURE OF BUSINESS CARRIED ON BY THE 'APPELLANT' AND EXPEDIENCIES THEREOF, THE 'APPELLANT' WAS OBLIGED TO KEEP A P ERMANENT 'FLOAT' OF FUNDS AND ON A DUE CONSIDERATION AND APPRECIATION OF THE SAID CONTENTION AND ALSO OTHER FACTS AND CIRCUMSTANCES OF THE CASE AS HAD BEEN DULY PUT FORTH BEFORE THE AUTHORITIES BELOW, INTEREST RATE OF 15% PER ANNUM COULD NOT HAVE BEEN HELD TO BE EXCESSIVE AND THE 'C I T ( A)' SHOULD HAVE VACATED THE DISALLOWANCE IN QUESTION. 5. BECAUSE THE 'APPELLANT' HAD ADDUCED AND PLACED ON RECORD, SUFFICIENT EVIDENCE, MATERIAL AND INFORMATION IN SUPPORT OF ITS CONTENTION AFORESAID AND VIEW TO THE CONTRARY AS HAS BEEN TAKEN BY THE LD, 'CIT (A)' READING AS UNDER: - 'HOWEVER, THE ASSESSEE FAILED TO FURNISH ANY COGENT EVIDENCE OR MATERIAL TO PROVE HIS CONTENTION THAT THERE WAS LEGITIMATE NEED AND PRACTICE OF THE BUSINESS TO BORROW HIGH INTEREST IN THE ASSESSEE COMPANY AND ALSO THE CIRCUMSTANCES OF BUSINESS EXPEDIENCY FOR CHARGING LOWER RATE JOIN GROUP CONCERNS AND RELATIVES OF THE DIRECTORS IN COMPARISON TO THE RATE OF INTEREST BEING PAID TO THE DIRECTORS'. IS WHOLLY ERRONEOUS AS BEING INCONSISTENT WITH THE MATERIAL AND INFORMATION ON RECORD AND LAW APPLICABLE THERETO. 6. BECAUSE THE 'C I T(A)' HAS ERRED IN LAW AND ON FACTS IN SUSTAINING AN AD HOC DISALLOWANCE OF RS.6,404/ - , AS 3 WORKED OUT @ 10% OF THE TOTA L CLAIM OF RS.64,036/ - UNDER THE HEAD 'MISCELLANEOUS EXPENSES'. 7. BECAUSE THE CASE LAWS REFERRED TO AND RELIED UPON BY THE 'C I T (A)', FOR THE PURPOSE OF SUSTAINING, (A) DISALLOWANCE OUT OF INTEREST : RS. 9,17,091 (B) ADHOC DISALLOWANCE OUT OF MISC . EXP. RS. 6,404 ARE DISTINGUISHABLE ON FACTS AND THE SAME ARE NOT SUSTAINABLE. 8. B ECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 3. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THE ASSESSEE COMPANY IS A NON BANKING FINANCE CO. (NBFC). HE FURTHER SUBMITTED THAT THE RECEIPT OF DEPOSIT BY THE ASSESSEE COMPANY BEING NBFC IS REGULATED BY RESERVE BANK OF INDIA (RBI). HE FURTHER SUBMITTED THAT THE DEPOSIT FROM TH E DIRECTORS AND THE RELATIVES IS EXEMPT IN VIEW OF NBFC REGULATIONS OF RBI BUT FOR OTHER DEPOSITS FROM PUBLIC, THERE IS RESTRICTION FROM RBI IN RESPECT OF QUANTUM OF DEPOSIT AS WELL AS REGARDING RATE OF INTEREST TO BE PAID ON SUCH DEPOSIT S . THEREAFTER HE SUBMITTED THAT THE DEPOSITS ARE FROM THE DIRECTORS AND THE RELATIVES , ON WHICH INTEREST WAS PAID IN THE PRESENT YEAR, OUT OF WHICH PART DISALLOWANCE IS MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION40 A (2) (B) OF IT ACT . HE FURTHER SU BMITTED THAT THE DETAILS OF THESE DEPOSITS ARE AVAILABLE ON PAGE NO. 104 TO 153 OF THE PAPER BOOK AND FROM THE SAME , IT CAN BE SEEN THAT MOST OF THE DEPOSITS WERE RECEIVED IN FINANCIAL YEAR 2001 - 02 FOR A PERIOD OF FIVE YEARS @15% INTEREST AND ONLY A FEW DE POSITS AS PER PAPER BOOK PAGE NO. 146 TO 153 WERE RENEWED IN THE PRESENT YEAR. THEREAFTER HE SUBMITTED THAT IN THE FINANCIAL YEAR 2001 - 02 IN WHICH MOST OF THE DEPOSITS WERE RECEIVED BY THE ASSESSEE FROM THE DIRECTORS AND RELATIVES @15%, THE PRESCRIBED RAT E OF INTEREST BY RBI WAS 16% PER ANNUM WHICH WAS FURTHER REDUCED TO 14% PER ANNUM FROM 01/04/2001. HE ALSO SUBMITTED THAT OF THE DEPOSIT FROM PUBLIC, THE 4 ASSESSEE HAS TO KEEP 15% AMOUNT AS LIQUID ASSET S IN SPECIFIED INVESTMENTS AND, HENCE THE ASSESSEE COU LD USE FOR ITS OWN BUSINESS ONLY 85% OF DEPOSITS SO RAISED AND, THEREFORE, EVEN IF INTEREST RATE IS SLIGHTLY HIGHER IN RESPECT OF EXEMPTED DEPOSIT S , THE SAME CANNOT BE STATED TO BE UNREASONABLE. 4. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE A UTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY IS NBFC AND HENCE, THE RECEIPT OF D EPOSIT AND PAYMENT OF INTEREST IS REGULATED BY RBI . AS PER THE RBI NOTIFICATION AVAILABLE ON PAGE NO. 159 TO 161, FOR THE PERIOD STARTING FROM 01/04/2001, THE RATE OF INTEREST PRESCRIBED BY RBI IN RESPECT OF PUBLIC DEPOSIT WAS REDUCED FROM 16% TO 14% PER ANNUM. WE ALSO FIND THAT AS PER PHOTOCOPY OF APPLICATION FORM FOR DEPOSIT, AVAILABLE ON PAGE NO. 104 TO 153 OF THE PAPER BOOK, MOST OF THE DEPOSITS WERE RECEIVED DURING FINANCIAL YEAR 2001 - 02 FOR A PERIOD OF 5 YEARS @15% PER ANNUM. HENCE, AS PER THE SAME AND AS PER FBI NOTIFICATION AVAILABLE ON PAPER BOOK, THE RATE OF INTEREST PAID BY THE ASSESSE E IS SLIGHTLY HIGHER @15% AS AGAINST @14% PER ANNUM AS PER RBI NOTIFICATION. BUT EVEN THIS INTEREST PAYMENT @15% WAS HIGHER BY 1 PERCENT IN PRECEDING YEAR ALSO AND THIS IS NOT THE CASE OF THE A.O. THAT ANY PART DISALLOWANCE WAS MADE IN ANY PRECEDING YEAR. MOREOVER, IT IS ALSO TRUE THAT WHEN PUBLIC DEPOSIT IS RECEIVED BY NBFC, SUCH NBFC HAS TO MAINTAIN LIQUID ASSETS TO THE EXTENT OF 15% OF THE DEPOSIT IN GOVERNMENT SECURITIES AT VERY LOW INTEREST RA TES RESULTING INTO LOSS OF INTEREST AND HENCE, THE EFFECTIVE RATE OF INTEREST FOR THE ACTUAL FUND AVAILABLE WITH NBFC FOR USE IN BUSINESS IS MORE THAN THE PRESCRIBED RATE OF RBI. CONSIDERING THESE FACTS, IN OUR CONSIDERED OPINION, THIS INCREASE IN INTERES T TO 15% FROM 14% CANNOT BE CONSIDERED UNREASONABLE AND 5 EXCESSIVE FOR THE PURPOSE OF APPLYING SECTION 40A (2) (B) OF THE ACT. HENCE, IN OUR CONSIDERED OPINION, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED IN THE FACTS OF THE PRESENT CAS E AS DISCUSSED ABOVE. WE, THEREFORE, DELETE THE SAME. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ABOVE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 4 /07 /2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR