ACIT CIR-2(1), JSR V. KESHAVJI CHHAGANLAL JEWELLERS PVT LTD , JSR

ITA 195/RAN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1708 (ITAT-RANCHI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 13-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P.K. MONDAL
• Keywords: Gift; Fair market value
• Section: 154; 143(3); 20

Judgement Text

1 ITA NO . 195/RAN/2018 A.Y 2015 - 16 KESHAVJI CHHAGANLAL JEWELLERS P.LTD PA GE 1 IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI (BEFORE SHRI S. S. GODARA , J.M. & DR.A.L.SAINI, A.M.) IT A NO. 19 5 /RAN/1 8 : ASSTT. YEAR : 20 15 - 16 A.C.I.T, CIRCLE - 2 (1), JAMSHEDPUR VS M/S. KESHAVJI CHHAGANLAL JEWELLERS PVT. LTD PAN: AACCK8715H (APPELLANT) (RESPONDENT) APPELLANT/ REVENUE BY : SHRI P.K. MONDAL , J CIT/LD.DR RESP ONDENT/ DEPARTMENT BY : NONE APPEARED DATE OF HEARING : 11 - 01 - 2019 DATE OF PRONOUNCEMENT: 20 - 0 2 - 2019 ORDER PER BENCH : THE C APTIONED APPEAL FILED BY THE R EVENUE , IS DIRECTED AGAINST THE ORDER DATED 16 - 03 - 2018 , PASSED BY THE LD. COMMISSIONER OF INCOME - TAX (APPEALS), JAMSHEDPUR , WHICH IN TURN ARISE S OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER U/S. 154/R.W.S 143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT, THE ACT) DATED 10 - 07 - 2017 . 2. AT THE TIME OF HEARING NONE APPEARED ON BEHALF OF ASSESSEE IN SPITE OF ISSUANCE OF NOTICE FOR HEARING MORE THAN ONE OCCASIONS. THE LEARNED DEPARTMENTAL REPRESENTATIVE ( LD.DR) WA S PRESENT FOR THE APPELLANT REVENUE. IN THE ABSENCE OF ANY APPEARANCE OF THE ASSESSE, THE APPEAL IS BEING DISPOSE OF EX PARTE QUA THE ASSESSE E AFTER HEARING THE LD. DR FOR THE REVENUE ON MERITS IN TERMS OF RULE 24 OF ITAT RULES, 1963. 2 ITA NO . 195/RAN/2018 A.Y 2015 - 16 KESHAVJI CHHAGANLAL JEWELLERS P.LTD PA GE 2 3. GROUNDS OF APP EAL RAISED BY THE R EVENUE IN ITA NO. 19 5 /RAN/2018 FOR THE A.Y 20 15 - 16 ARE AS UNDER: - GROUND NO. 1: WHETHER ON THE FACTS AND CIRCUMSTANCES STATED ABOVE, LD.CIT(A), JAMSHEDPUR IS CORRECT BY ALLOWING 15% INTEREST ON UN SECURED LOAN OF RS.1,79,93,474/ - , WHICH WAS DISALLOWED BY AO ON THE GROUND OF EXCESS PAYMENT OF INTEREST OVER 12% OF RS.35,98,695/ - U/S. 40A(2)(B) OF THE I.T ACT 1961 GIVEN ON THE UNSECURED LOANS BY THE ASSESSEE? AS PER SECTION 40(B)(IV) PAYMENT OF INTEREST TO PARTNERS IS RESTRICTED TO 12% WHIC H WAS FORMING BASIS OF FAIR MARKET RATE. 4. BRIEF FACTS QUA THE ISSUE ARE THAT T HE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH IS IN THE RETAIL BUSINESS OF JEWELLERY AND GIFT ITEMS. FOR THE A . Y . 2 015 - 16, THE ASSESSEE FILED HIS RETURN OF INCOME ON 2/10/2015 SHOWING - TOTAL INCOME OF RS.2 , 82,23,300 / - . THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. IN ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE BOOKS OF ACCOUNTS AND FILE OTHER DETAILS THAT WERE DULY COMPLIED WITH. DURING THE PERIOD UNDE R CONSIDERATION, THE ASSESSEE HAD PAID INTEREST OF RS. 1,79,93,473 / - ON UNSECURED LOANS TO PARTIES COVERED BY SECTION 40A(2)(B) @ 15%. THE AO HOWEVER FORMED AN OPINION THAT INTEREST @ 15% WAS EXCESSIVE OF FAIR MARKET VALUE. IN HIS OPINION, INTEREST @ 12% REPRESENTED FAIR MARKET VALUE. THEREFORE IN HIS ORDER U/S. 143(3) DATED 30/6/2017, MADE AN ADDITION U / S. 40A(2)(A) OF RS.5,39,804 / - TO THE RETURNED INCOME. LATER, THE AO PASSED AN ORDER U/S . 154 WHEREBY THE ADDITION TO THE RETURNED INCOME WAS INCREASED TO RS. 35,98,695. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A), WHO HAS DELETED THE ADDITION MADE BY AO OBSERVING THE FOLLOWING: 3 ITA NO . 195/RAN/2018 A.Y 2015 - 16 KESHAVJI CHHAGANLAL JEWELLERS P.LTD PA GE 3 3.2 FROM THE ASSESSMENT ORDER IT IS SEEN THAT FIRSTLY AO DEMONSTRATED HOW THE APPELLANT PAID INTEREST @15% TO DIRECTORS/RELATIVES OF 'DIRECTORS/HUF OF DIRECTORS/ASSOCIATE FIRMS AND AN ASSOCIATE COMPANY. THEN HE QUOTED SECTION 40A(2)(A) AND THEN WENT AHEAD TO OBSERVE AS UNDER: - IN THIS RESPECT, IT IS CLEAR THAT THE ASSESS EE HAS PAID INTEREST ON THE LOAN RECEIVED DURING THE PREVIOUS YEAR @ 15% WHICH IS EXCESSIVE OF FAIR MARKET RATE, I.E. @ 12% IN THE BUSINESS AND PROFESSION RESULTING EXCESSIVE PAYMENT OF INTEREST AMOUNTING TO RS.5,39,804/ - TO THE PARTIES WHICH IS HEREBY DIS ALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3.3. THE FIGURE OF RS. 5,39,804/ - WAS LATER REVISED TO RS. 35,98,695/ - FOR THE AO ALWAYS WANTED TO DISALLOW THE AMOUNT OF RS. 35,98,695/ - BECAUSE THAT FIGURE WILL BE ARRIVED AT WHEN AS PER HIS REASON ING THE DIFFERENCE BETWEEN INTEREST PAID @15% AND INTEREST THAT WOULD HAVE BEEN PAYABLE AT 12% IS WORKED OUT. 3.4. HOWEVER, HE HAS NOT MENTIONED WHY 12% IS FAIR MARKET RATE. AS IT CAN BE UNDERSTOOD, IN FUND BORROWING MARKET (OTHER THAN THE USURIOUS TYPE , WHICH IS CRIMINAL) RATES ARE FROM 6% TO 24%. THEREFORE, A O 'S ADOPTION OF 12% IS WITHIN THE ABOVE MENTIONED BROAD RANGE. HOWEVER, THE RATE WILL VARY ON VARIOUS FACTORS, LIKE LENDER IS ORGANIZED INSTITUTION OR NOT, THE CREDITWORTHINESS OF BORROWER, THE SE CURITY GIVEN BY BORROWER, COLLATERAL SECURITY GIVEN BY BORROWER O VER AND ABOVE THE BASIC SECURITY, TENURE OF LOAN, OTHER CONDITIONS LIKE PENAL INTEREST/PENAL CHARGES IN THE EVENT OF DELAY ETC. SINCE ORGANIZED LENDERS LIKE BANKS AND RBI REGULATED NBFCS HA VE SET RULES AND RIGIDITY IN TERMS OF SECURITY /HYPOTHECATION THEIR RATES MAY SOMETIMES BE LITTLE LOWER ON THE FACE OF IT. WHILE UNSECURED LOANS, PARTICULARLY WITHOUT ANY WRITTEN AGREEMENT, MAY BE AVAILABLE AT HIGHER RATE OF INTEREST, DUE TO REASONS LIKE FLEXIBILITY, NO PAPER WORK, NO CHARGE ON ASSETS ETC. THEREFORE; WHILE APPLYING SECTION 40A(2)(B) THE COMPARABLE SHOULD BE THE ONE THAT IS PLACED IN SIMILAR CIRCUMSTANCES / SITUATION AS THE RELATED PARTIES/RELATIVES. THEREFORE, IF AN ASSESSEE TAKES LOAN F ROM A RELATIVE AT 15% AN D FROM AN OUTSIDE INDIVIDUAL AT 12% ON UNWRITTEN AGREEMENTS, WITHOUT ANY SECURITIES (I.E. UNSECURED LOANS) AND BOTH ARE RETURNABLE AT CALL THEN SECTION 40A(2)(B) WILL CAME INTO PLAY SUBJECT TO THE CONDITION THAT THERE IS STILL NO MA JOR DIFFERENCE IN THE CONDITIONS OF BOTH LENDERS. IN THIS CASE NO SUCH COMPARISON HAS BEEN MADE. 4 ITA NO . 195/RAN/2018 A.Y 2015 - 16 KESHAVJI CHHAGANLAL JEWELLERS P.LTD PA GE 4 3.5. AS MENTIONED ABOVE IN THE SUBMISSION, THE APPELLANT HAD CONTENDED BEFORE AO THE BASIC DIFFERENCES BETWEEN THE SITUATION OF HIS UNSECURED LENDERS AND OTHE RS. HOWEVER, AO DIDN'T ACCEPT APPELLANT'S CONTENTIONS. THE SAME CONTENTION WAS MADE BEFORE ME ALSO. MOREOVER, THE APPELLANT RELIED ON THE JUDGEMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CAMA HOTELS WHEREIN 16% INTEREST PAID BY THAT ASSESSEE WAS UPH ELD BY THE COURT TO BE 'COMMENSURATE WITH THE INTEREST RATE PREVAILING IN THE OPEN MARKET. THE HONBLE ITAT, DELHI, IN THEIR DECISION, IN THE CASE OF AJANTA HANDTEX PVT. LTD ALLOWED 18% INTEREST PAID TO PERSONS COVERED U/S. 40A(2)(B). SIMILAR VIEW HAS BEEN TAKEN BY HONBLE ITAT IN THE CASE OF VIPUL Y MEHTA (AHMEDABAD). EMAMI CHISEL ART PVT. LTD (KOLKATA) AND MANISH DYEING & PRINTING WORKS (AH MEDABAD). 3.6 THEREFORE, AFTER HAVING CONSIDERED THE FACTS OF THE CASE AND LAW (INCLUDING ABOVE MENTIONED JUDGMEMTS /DECISIONS) I FIND THAT THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE ABOVE CITED DECISIONS. THEREFORE, RESPECTFULLY FOLLOWING THEM I HAVE NO OPTION BUT TO DELETE THE DISALLOWANCE OF RS. 35,98,695/ - . ACCORDINGLY, ADDITION OF RS.35,98,695/ - MADE TO T HE DECLARED INCOME OF THE APPELLANT IS DELETED. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT LD CIT(A) ADJUDICATED THE ISSUE TAKING INTO ACCOUNT VARIOUS FACTORS WHICH CAN INFLUENCE THE INTEREST RATE THE REFORE REASONING GIVEN BY THE LD CIT(A) IN PARA 5 OF THIS ORDER DOES NOT CONTAIN ANY INFIRMITY. THAT BEING SO, WE DECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD CIT(A), HIS ORDER ON THIS ISSUE IS HEREBY UPHELD AND GROUNDS OF APPEAL RAISED BY THE REVENU E IS DISMISSED. 7 . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 20 - 0 2 - 2019 SD/ - SD/ - ( S. S. GODARA ) (DR. A.L.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 - 0 2 - 2019 5 ITA NO . 195/RAN/2018 A.Y 2015 - 16 KESHAVJI CHHAGANLAL JEWELLERS P.LTD PA GE 5 *PRADIP (SR.PS) COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT/ REVENUE: THE ACIT, CIR - 2 (1), JSR 2 THE RESPONDENT/ ASSESSEE: M/S. KESHAVJI CHHAGANLAL JEWELLERS P. LTD KESHAVJI BHAWAN, DIAGONAL ROAD, BISTUPUR BAZAR, JSR - 831001. 3. THE CIT - , 4. THE CIT(A) - , 5. DR, RANCHI BENCHES, RANCHI TRUE COPY, BY ORDER, ASSISTANT REGISTRAR / SENIOR P.S ITAT, RANCHI BENCHES