Ruby Overseas, CHENNAI V. ACIT Non Corporate Circle 12(1), CHENNAI

ITA 1918/CHNY/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1861 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 13-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B. SAGADEVAN
• Keywords: Set aside
• Section: 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ' # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.1918/CHNY/2018 & '& / ASSESSMENT YEAR : 2015-16 M/S RUBY OVERSEAS, NO.68, GOVINDAPPA NAICKEN STREET, SOWCARPET, CHENNAI - 600 001. PAN : AAJFR 7237 B V. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 12(1), CHENNAI. ()*/ APPELLANT) (+,)*/ RESPONDENT) )* - . / APPELLANT BY : SHRI N. ARJUN RAJ, CA FOR SHRI S. SRIDHAR, ADVOCATE +,)* - . / RESPONDENT BY : SHRI B. SAGADEVAN, JCIT / - 0' / DATE OF HEARING : 13.11.2018 12' - 0' / DATE OF PRONOUNCEMENT : 16.11.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -13, CHENN AI, DATED 29.05.2018 AND PERTAINS TO ASSESSMENT YEAR 2015-16. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF INTEREST PAID BY THE ASSESSEE TO THE RELATED PARTIE S. 2 I.T.A. NO.1918/CHNY/18 3. SHRI N. ARJUN RAJ, THE LD. REPRESENTATIVE FOR TH E ASSESSEE, SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE BORROWED UNSECURED LOAN FROM 38 PERSONS AND PAID IN TEREST AT THE RATE OF 18% 19.76%. OUT OF 38 PERSONS, 3 PERSONS WERE RELATED TO THE ASSESSEE. IN RESPECT OF THOSE 3 PERSONS, WH O ARE RELATED TO THE ASSESSEE, ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE PAID INTEREST AT THE RATE OF 18%. HOWEVER, THE ASS ESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF THE THREE RELATED PARTIES, PRESUMABLY UNDER SECTION 40A(2) OF THE INC OME-TAX ACT, 1961 (IN SHORT 'THE ACT') ON THE GROUND THAT THE MA RKET RATE OF INTEREST WAS 12%. SINCE THE INTEREST PAID TO OTHER 35 LENDERS WAS DISALLOWED BY THE ASSESSING OFFICER AND THE RATE OF INTEREST WAS ALSO ACCEPTED BY THE ASSESSING OFFICER AT THE RATE OF 18 % TO 19.76%, ACCORDING TO THE LD. REPRESENTATIVE, THERE WAS NO R EASON TO DISALLOW THE INTEREST PAID BY THE ASSESSEE TO THE RELATED PA RTIES AT THE RATE OF 18%. 4. ON THE CONTRARY, SHRI B. SAGADEVAN, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT THE PAYMENT OF INTER EST AT THE RATE OF 18% IS VERY HIGH WHEN THE MARKET RATE OF INTEREST W AS ONLY 12%. 3 I.T.A. NO.1918/CHNY/18 THEREFORE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE TOWARD S INTEREST PAYMENT, THE DIFFERENCE BETWEEN THE ACTUAL INTEREST PAID AND COMPARABLE MARKET RATE OF INTEREST. THEREFORE, ACC ORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE OR DER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMS THAT IT BORROWED UNSECURED LOAN FROM 38 PERS ONS, OUT OF WHICH, 3 PERSONS ARE RELATED TO THE ASSESSEE. THE A SSESSING OFFICER AS WELL AS THE CIT(APPEALS) HAVE NOT EXAMINED WHETH ER THE ASSESSEE, IN FACT, BORROWED UNSECURED LOAN FROM 38 PARTIES. THE FACTS ARE NOT BROUGHT ON RECORD EITHER BY THE ASSES SING OFFICER OR CIT(APPEALS) WITH REGARD TO UNSECURED LOAN BORROWED BY THE ASSESSEE FROM OTHER PARTIES. MOREOVER, THERE IS NO MATERIAL AVAILABLE ON RECORD WITH REGARD TO MARKET RATE OF I NTEREST. WHEN THE ASSESSEE CLAIMS UNSECURED LOAN WAS BORROWED, THE MA RKET RATE FOR UNSECURED LOAN SHALL BE TAKEN AS COMPARABLE RATE FO R MAKING DISALLOWANCE. 4 I.T.A. NO.1918/CHNY/18 6. MOREOVER, IT IS ALSO TO BE ASCERTAINED WHETHER O UT OF 38 LENDERS, ONLY 3 PARTIES ARE RELATED TO THE ASSESSEE . IN THE ABSENCE OF ANY DETAILS WITH REGARD TO LENDERS OF LOAN, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AFRESH AND BRING ON RECORD THE DETAILS OF TH E PERSONS FROM WHOM UNSECURED LOAN WAS SAID TO BE BORROWED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND SO-CALLED R ELATED PARTIES, HOW THEY ARE RELATED TO THE ASSESSEE AND THE RATE O F INTEREST PAID TO THE RELATED PARTIES AND ALSO THE MARKET RATE OF INT EREST FOR UNSECURED LOAN WHICH PREVAILED AT THE RELEVANT POINT OF TIME. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASO NABLE OPPORTUNITY TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5 I.T.A. NO.1918/CHNY/18 ORDER PRONOUNCED IN THE COURT ON 16 TH NOVEMBER, 2018 AT CHENNAI. SD/- SD/- ( ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 16 TH NOVEMBER, 2018. KRI. - +056 76'0 /COPY TO: 1. )*/ APPELLANT 2. +,)*/ RESPONDENT 3. / 80 () /CIT(A)-13, CHENNAI 4. PRINCIPAL CIT-8, CHENNAI-34 5. 69 +0 /DR 6. :& ; /GF.