The ITO, Ward-4, Patan V. Amrut Polymers, Mehsana

ITA 2054/AHD/2012

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7923 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Commercial expediency; Revenue expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER SL. NO. ITA NO(S)/ CO NO. ASSESS- MENT YEAR(S) APPEAL(S)/CO BY APPELLANT VS. RESPONDENT 1. 2049/AHD/12 2009-10 M/S.AMRUT POLYMERS GIDC, KANSA-VISNAGAR ROAD AT VISNAGAR, MEHSANA PAN: AADFA 0549 H ITO, WARD(4) PATAN MEHSANA 2. 2054/AHD/12 2009-10 -DO-REVENUE ASSESSEE 3. CO NO.213/AHD/12 (IN ITA 2054/AHD/12) 2009-10 ASSESSEE -DO-REVENUE 4. 1835/AHD/12 2010-11 ASSESSEE JT.CIT,PATAN RANGE PATAN ASSESSEE BY : SHRI P.M. MEHTA, AR REVENUE BY : SHRI SAURABH SINGH, SR.DR DATE OF HEARING 14/06/2018 DATE OF PRONOUNCEMENT 04/ 07 /2018 / O R D E R PER MS. MADHUMITA ROY - JM: THE TWO APPEALS BEING ITA NOS.2049/AHD/2012 AND 20 54/AHD/2012HAVE BEEN FILED BEFORE US AGAINST THE COMMON ORDER DATED 11.06.2012 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINAGAR, AHMEDABAD [LD.CIT(A) IN SHORT] BOTH FOR ASSESSMENT YEAR (AY) 2009-10 BY THE ASSESSEE AND THE REVENUE RESPEC TIVELY. A CROSS OBJECTION BEING CO NO.213/AHD/2012 FOR AY 2009-10 HAS BEEN FILED BY TH E ASSESSEE IN REGARD TO THE APPEAL BEING ITA NO.2054/AHD/2012 PREFERRED BY THE REVENUE . A SEPARATE APPEAL BEING ITA NO.1835/AHD/2014 FOR AY 2010-11 HAS BEEN FILED BEFO RE US BY THE ASSESSEE AGAINST THE ORDER DATED 16.05.2014 FOR AY 2010-11 PASSED BY THE LD.CI T(A), GANDHINAGAR, AHMEDABAD. - 2 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 2. IN THE FIRST THREE MATTERS ARE INTER-CONNECTED AND THEREFORE FOR THE SAKE OF BREVITY, THE SAME ARE HEARD ANALOGOUSLY AND ARE DISPOSED OF BY A COMMON JUDGEMENT. ITA NO.2049/AHD/2012 AY 2009-10 ASSESSEES APPEAL 3. THE FIRST GROUND OF INSTANT APPEAL HAS BEEN RAI SED BY THE ASSESSEE ALLEGING ERROR COMMITTED BY THE AO IN PASSING ORDER OF DISALLOWANC E U/S.14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') FOR RS.19,65 ,003/-. 4. THE LD.AR WITH ALL HIS FAIRNESS SUBMITTED BEFORE US THAT THIS ISSUE THOUGH DISCUSSED AND DETAILED SUBMISSION WAS MADE IN THE STATEMENT O F FACTS, INADVERTENTLY, THE ASSESSEE DID NOT RAISE THIS PARTICULAR GROUND IN THE STATEMENT O F GROUNDS OF APPEAL BEFORE THE LD.CIT(A) AND THUS PRAYS FOR REAPPRAISAL OF THE SAID GROUND B Y THE LD.CIT(A). ON THE OTHER HAND, THE LD.DR RELIES UPON THE ORDER PASSED BY THE LD.AO. 5. WE HAVE GONE THROUGH THE MATERIALS AVAILABLE ON RECORD INCLUDING THE ORDERS PASSED BY THE AUTHORITIES BELOW. WE FIND MERIT IN THE PLEA O F THE ASSESSEE TOWARDS INADVERTENCE FOR OMITTING TO RAISE A SPECIFIC GROUND FOR ADJUDICATIO N BEFORE CIT(A) DESPITE DETAILED PRESENTATION OF FACTS IN STATEMENT OF FACTS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONSIDER IT JUST AND PROPER AND IN THE INTEREST OF JUSTICE TO SET ASIDE THE ISSUE IN DISPUTE AND RESTORE THE MATTER TO THE FILE OF THE LD.CIT(A) TO DECIDE THE ISSUE AFRESH UPON GIVING A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE AND FURTHER TAKING INTO CONSIDERATION OF THE ENTIRE EVIDENCE ALREADY AVAILABLE ON RECORD AS WELL AS OTH ER DOCUMENTARY EVIDENCE WHICH THE ASSESSEE MAY CHOOSE TO FILE IN SUPPORT OF THE CLAIM ON THE ISSUE. THUS, THE SAID GROUND PREFERRED BY THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. - 3 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 6. AS PER THE SECOND GROUND, THE ASSESSEE HAS CHALL ENGED THE CORRECTNESS OF DISALLOWANCE OF INTEREST EXPENSE OF RS.12,330/- @ 6% (18% - 12%) OUT OF INTEREST PAYMENT WITHOUT APPRECIATING THE FACT THAT THE INTEREST RECEIVED BY THE ASSESSEE @ 12% WHICH IS REASONABLE AND NOT THE ESTIMATED RATE OF INTEREST @18% NOTIONALLY AS DONE BY THE LD.CIT(A). THE BRIEF FACTS LEADING TO THE ISSUE IS THAT THE ASSESSEE GAVE FUND S TO ONE M/S.SONA STAINLESS STEEL @ 12% INTEREST WHEREAS THE ASSESSEE WAS PAYING INTEREST @18% ON THE SAID AMOUNT OF FUNDS ON LOAN. IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE R EPLIED THAT DUE TO BUSINESS RELATIONS THE INTEREST IS PAID @ 12%. THE FACTS OF PAYING 18% BY THE ASSESSEE WHEN THE FUNDS ARE ADVANCED @ 12% WAS NOT ACCEPTED BY THE AO; THE BALANCE 6% AP PEARED TO BE EXCESSIVE ACCORDING TO THE AO PARTICULARLY WHEN NO SUCH BUSINESS PURPOSE W AS SHOWN BY THE ASSESSEE FOR CHARGING INTEREST @ 12% ONLY. THUS, 6% INTEREST I.E. RS.12, 330/- HAS BEEN DISALLOWED BY THE AO AND ADDED TO THE INCOME OF THE ASSESSEE WHICH WAS AFFIR MED BY THE LD. CIT(A) IN APPEAL, HENCE, THE APPEAL BEFORE US. 7. WE FIND THAT THE AO HAS NOT MADE ANY ENQUIRY AS TO THE PREVAILING MARKET RATE OF INTEREST INDEPENDENTLY AND ONLY ON SURMISES AND CON JECTURES WITHOUT ANY BASIS THE ORDER OF DISALLOWANCE OF 6% INTEREST AS MADE EXCESSIVE. WE THEREFORE SET ASIDE THE ORDER OF DISALLOWING INTEREST EXPENSE OF RS.12,330/-. THUS, GROUND OF APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED. 8. THE THIRD GROUND RELATES TO DISALLOWANCE OF DEPR ECIATION ON CAR OF RS.61,286/-. THE FACTS RELATES TO THE ISSUE IS THIS THAT THE ASSESSE E HAS PURCHASED A MARUTI WAGONR CAR, THE DEPRECIATION HAS BEEN CLAIMED @50% ON VALUATION OF THE SAID CAR. ACCORDING TO THE ASSESSING OFFICER (AO) WHICH WAS MUCH HIGHER. SHOW -CAUSE NOTICE WAS ISSUED TO THE ASSESSEE UPON WHICH THE ASSESSEE HAS SUBMITTED THE DEPRECIATION @50% IS ALLOWABLE ON ALL CARS. THE LD.AO CAME TO A FINDING THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING HDPE/LDPE PLASTIC BAGS AND THE VEHICL E IS NOT GIVEN ON HIRE. THE RATE - 4 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 CLAIMED BY THE ASSESSEE CAN ONLY BE CONSIDERED HAD IT BEEN A COMMERCIAL VEHICLE AND USED IN THE BUSINESS OF HIRING AND THUS 50% OF THE DEPRECIA TION WAS ALLOWED BY THE AO AND EXCESS DEPRECIATION TO THE TUNE OF RS.61,286/- WAS DISALLO WED AND ADDED TO THE TOTAL INCOME OF THE A SSESSEE. 9. AT THE TIME OF HEARING OF THE MATTER, THE LD.AR WITH ALL HIS FAIRNESS SUBMITTED BEFORE US THAT THIS PARTICULAR ISSUE THOUGH DISCUSSED AND DETAILED SUBMISSION WAS MADE IN THE STATEMENT OF FACTS, INADVERTENTLY, THE ASSESSEE DID NOT RAISE THIS GROUND IN THE STATEMENT OF GROUNDS OF APPEAL BEFORE THE LD.CIT(A) AND THUS PRA YS FOR REAPPRAISAL OF THE SAID GROUND BY THE LD.CIT(A). ON THE OTHER HAND, THE LD.DR REL IES UPON THE ORDER PASSED BY THE LD.AO. WE FIND MERIT IN THE PLEA OF THE ASSESSEE TOWARDS I NADVERTENCE FOR OMITTING TO RAISE A SPECIFIC GROUND FOR ADJUDICATION BEFORE CIT(A) DESPITE DETAI LED PRESENTATION OF FACTS IN STATEMENT OF FACTS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , WE CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO SET ASIDE THE ORDER PASSED B Y THE AUTHORITIES BELOW ON THE ISSUE IN DISPUTE AND RESTORE THE MATTER TO THE FILE OF THE LD.CIT(A) TO DECIDE THE ISSUE AFRESH UPON GIVING A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE AND F URTHER TAKING INTO CONSIDERATION OF THE ENTIRE EVIDENCE ALREADY AVAILABLE ON RECORD AS WELL AS OTHER DOCUMENTARY EVIDENCE WHICH THE ASSESSEE MAY CHOOSE TO FILE IN SUPPORT OF THE CLAIM ON THE ISSUE. THUS, THE SAID GROUND PREFERRED BY THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. 10. THE FOURTH GROUND RELATES TO THE ORDER OF DISAL LOWANCE OUT OF TOTAL INTEREST EXPENSES/SALARY BEING EXCESS U/S.40A(2)(B) OF THE A CT. THE ASSESSEE MADE PAYMENT OF SALARY TO PERSONS WHO ARE COVERED BY SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE WAS PAYING RS.5,000/- TO THREE EMPLOYEES AND RS.7,000/- TO OTH ER THREE OFFICE CLERKS WHICH ACCORDING TO THE ASSESSEE WAS NORMAL AND NOT UNREASONABLE. HOWE VER, THE LD.AO INVOKING SECTION 40A(2)(B) OF THE ACT MADE DISALLOWANCE ON THE PREMI SE THAT THE ASSESSEE HAS FAILED TO FILE THE DETAILS OF SERVICES, NATURE OF DUTIES TO PROVE PAYM ENT OF THOSE EMPLOYEES TO SHOW THE REASONABLENESS. IN FACT, THE ASSESSEE HAS SUBMITT ED SUCH DETAILS IN THE COURSE OF ASSESSMENT - 5 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 PROCEEDING ALONG WITH SUBMISSION DATED 05.12.2011 WHICH IS ALSO EVIDENT AT PAGE NO.21 OF THE PAPER-BOOK. 11. AT THE TIME OF HEARING OF THE INSTANT APPEAL, L D.AR SUBMITTED BEFORE US THAT THE SERVICES RENDERED BY THE EMPLOYEES IN THE BUSINESS OF THE ASSESSEE AND THE PAYMENT OF SALARY TOWARDS SUCH PERFORMANCE WAS NOT DISPUTED BY THE DE PARTMENT IN THE EARLIER ASSESSMENT YEARS. HE, THEREFORE, PRAYS FOR SETTING ASIDE THE ORDER OF DISALLOWANCE ON SUCH COUNT. THE LD. DR, HOWEVER, RELIES UPON THE ORDER PASSED BY THE AUTHORITIES BELOW. 12. WE HAVE HEARD BOTH THE PARTIES. WE HAVE PERUSE D THE RELEVANT RECORDS RELATING TO THE ISSUE. WE HAVE FOUND JUSTIFICATION IN THE SUBMISSI ON MADE BY THE LD.AR PARTICULARLY WHEN NO DELIBERATION HAS BEEN MADE BY THE LD.AO WHILE DE VIATING FROM HIS EARLIER STAND TAKEN BY REVENUE IN ACCEPTING THE RATE IN REGARD TO PAYMEN T OF SALARY AND PERFORMANCE OF THESE EMPLOYEES IN THE EARLIER ASSESSMENT YEAR. WE, THER EFORE, DO NOT JUSTIFY THE ORDERS PASSED BY THE AUTHORITIES BELOW AND DELETE SUCH ADDITION OF RS.1,29,248/-. IN THE RESULT, THE GROUND PREFERRED BY THE ASSESSEE IS ALLOWED. 13. THE FIFTH GROUND HAS BEEN RAISED BY THE ASSESSE E QUESTIONING THE CORRECTNESS OF THE ORDER PASSED BY THE LD.CIT(A) IN CONFIRMING THE DIS ALLOWANCE OF INSURANCE EXPENSES OF RS.1,29,248/- WHEN NO SUCH DISALLOWANCE WAS CALLED FOR. FACTUALLY, THE ASSESSEE HAS TAKEN VARIOUS POLICIES FOR BUSINESS PURPOSES. THE TOTAL CLAIM ON THAT COUNT WAS OF RS.2,73,119/-. UPON PERUSAL OF THE DETAILS OF POLICIES AND THE COM PUTATION OF THE AMOUNT PERTAINS TO THE NEXT YEAR AND THE LEDGER ACCOUNTS OF EXPENSES SUPPLIED B Y THE ASSESSEE, THE AO FOUND THAT RS.1,29,248/- HAS BEEN COMPUTED ON THE BASIS OF DA TE OF POLICY. THE ASSESSEE WAS THEREAFTER ASKED TO JUSTIFY THE CLAIM OF ENTIRE EXPENSES FOR T HE YEAR UNDER CONSIDERATION. THE AO FOUND THAT SINCE THE ASSESSEE FOLLOWING THE MERCANTILE SY STEM OF ACCOUNTING, THE EXPENSES PERTAINING TO NEXT YEAR CANNOT BE ALLOWED IN THE YEAR UNDER CO NSIDERATION AND THUS SUCH EXPENSE OF - 6 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 RS.1,29,248/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE WHICH WAS FURTHER CONFIRMED BY THE LD.CIT(A). 14. IT APPEARS THAT THE ASSESSEE IS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING AND THE ASSESSEE WAS GIVEN AMPLE OPPORTUNITIES TO SUBSTANTI ATE THEIR CLAIM. THE ISSUE IS NOT OF COMMERCIAL EXPEDIENCY/BUSINESS PURPOSE BUT THE EXPE NSES SHOWN BY THE ASSESSEE WERE INCURRED FOR INSURANCE FOR THE PERIOD FALLING IN NE XT YEAR AND HAVE NOT APPROVED. SINCE IT HAS NOT APPROVED AND IT PERTAINS TO SUBSEQUENT YEAR, IT IS NOT ALLOWABLE AND WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) IN CONFIRMING TH E DISALLOWANCE MADE BY HIM. WE THEREFORE DISMISS THE GROUND ON THIS ISSUE PREFERRE D BY THE ASSESSEE. 15. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.2049 /AHD/2012 FOR AY 2009-10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2054/AHD/2012 AY 2009-10 - REVENUES APPE AL 16. THE EFFECTIVE GROUND PREFERRED BY REVENUE IN TH E INSTANT APPEAL RELATES TO ORDER PASSED BY THE LD.CIT(A) IN DELETING THE ADDITION MADE U/S. 37 OF THE ACT BY THE AO TO THE TUNE OF RS.21,00,000/- ON ACCOUNT OF DISALLOWANCE OF COMMIS SION EXPENSES/PAYMENT MADE TO AGENTS. THE SAID ISSUE WAS REJECTED BY THE AO BASICALLY ON THE PREMISE THAT THE DETAILS OF THE WORK DONE BY THE AGENTS, THE JUSTIFICATION OF EXPENSES T HERETO, THE COPIES OF AGREEMENT WITH THOSE AGENTS, BILLS SHOWING NAMES OF THOSE AGENTS, RATE O F COMMISSION WERE NOT PROVIDED BY THE ASSESSEE. THE CONFIRMATION OF THE PURCHASERS OF G SFC LIMITED, GNFC LIMITED, KRIBHCO LIMITED OR RCF LIMITED SINCE NOT FILED AND THE COM MISSION PAID TO THOSE AGENTS WERE ACCORDING TO THE AO WAS TOO HIGH WITHOUT ANY BASIS THE LD.AO DISALLOWED THE SAME. ON THE OTHER HAND, THE LD.CIT(A) IN APPEAL PREFERRED BY TH E ASSESSEE ON THE BASIS OF THE AVAILABLE EVIDENCE INTER ALIA THE COPY OF ACCOUNT OF RESPECTI VE PARTIES WITH CROSS CONFIRMATION, - 7 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 PERMANENT ACCOUNT NUMBERS, BANK STATEMENT, THE DETA ILS OF COMMISSION AND THE DEDUCTION OF TDS CAME TO A FINDING THAT THE IDENTITIES OF THOSE PARTIES HAVE BEEN ESTABLISHED BY THE ASSESSEE PARTICULARLY WHEN PAYMENTS WERE MADE THROU GH BANKING CHANNELS, TDS DEDUCTED AND PAYEES ARE ASSESSED TO INCOME-TAX. ACCORDING T O THE LD.CIT(A), THE ASSESSEE HAS DISCHARGED ITS BASIC ONUS. THE LD.CIT(A) HAS FOLLO WED THE OBSERVATION MADE IN THE JUDGEMENT OF CIT VS. ASSOCIATED ELECTRICAL AGENCIE S (2004) 266 ITR 63 PASSED BY THE HONBLE MADRAS HIGH COURT WHERE IT WAS HELD THAT IF THE ASSESSEE WHICH CARRIES ON A BUSINESS FINDS THAT IT IS COMMERCIALLY EXPEDIENT TO INCUR CE RTAIN EXPENDITURE DIRECTLY OR INDIRECTLY, IT WOULD BE OPEN TO SUCH AN ASSESSEE TO DO SO NOTWITHS TANDING THE FACT THAT A FORMAL DEED DOES NOT PROCEED THE INCURRING OF SUCH EXPENDITURE. HE THUS ALLOWED THE GROUND OF APPEAL. 17. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES. WE HAVE PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD.DR RELIED UPO N THE ORDER PASSED BY THE AO, WHEREAS THE LD.AR MADE HIS SUBMISSION IN SUPPORT OF THE ORD ER OF THE LD.CIT(A). WE FIND THAT THE JUSTIFICATION GIVEN BY THE LD.CIT(A) IN DELETING TH E ADDITION MADE BY THE LD.AO TO THE TUNE OF RS.21,00,000/- ON COMMISSION EXPENSES INCURRED B Y THE ASSESSEE IS JUST AND PROPER IN VIEW OF THE OBSERVATION MADE BY THE JUDGEMENT CITED IN T HIS RESPECT PASSED BY THE HONBLE MADRAS HIGH COURT. WE, THEREFORE, FIND NO REASON TO INTER FERE WITH THE ORDER PASSED BY THE LD.CIT(A). THUS THE GROUND PREFERRED BY THE REVENU E IS REJECTED. 18. THE SECOND GROUND PREFERRED BY THE REVENUE IN T HE INSTANT APPEAL RELATES TO DELETION OF ADDITION MADE BY THE AO U/S.40A(2)(B) OF THE ACT OF RS.26,44,150/- ON ACCOUNT OF EXCESS INTEREST PAYMENT. 19. THE BRIEF FACTS LEADING TO THIS ISSUE IS THAT ON THE BASIS OF COMMENTS MADE BY THE AUDITOR THAT MOST OF THE DEPOSITORS ARE RELATIVES OF PARTN ERS AND PROVIDED INTEREST @ 18% P.A., NOTICE HAS BEEN SERVED UPON THE ASSESSEE TO JUSTIFY TRANSA CTION WITH THOSE RELATED PARTIES BY THE AO. - 8 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 IN REPLY, THE ASSESSEE SUBMITTED THAT 12% IS PAID T O THE RELATED PARTIES WHO ARE DEPOSITORS. UPON VERIFICATION OF UNSECURED LOAN ACCOUNT BY THE LD.AO, IT REVEALED THAT 18% INTEREST IS PAID TO ALL DEPOSIT ACCOUNTS. IN SPITE OF ASKING, THE LD. AR FAILED TO PROVIDE THE DETAILS OF DEPOSITORS ACCOUNT IN WHICH 12% INTEREST IS PAID. IN FACT, THE PARTNERS ARE PAID AT 12% INTEREST. THE LD. AR SINCE FAILED TO JUSTIFY PAYME NT OF INTEREST @ 18% THOUGH ALL THE DEPOSITORS ARE RELATED TO THE PARTNERS, THE AO DID NOT CONSIDER INTEREST IN EXCESS OF 12% TO RELATED PARTIES AS BUSINESS EXPENSES AND HE THUS DI SALLOWED THE BALANCE 6% (18% - 12%) OF INTEREST BEING EXCESSIVE TO THE TUNE OF RS.26,44,15 0/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE WHICH WAS ULTIMATELY REVERSED BY THE ORDER PASSED BY THE LD.CIT(A). 20. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES. WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD PAID 18% INTEREST IN EARLIER YEARS TOO ON UNSECURED LOANS. HE AGREED WITH THE FACT THAT INTEREST ON UNSECURED LOANS IN MARKET HAS TO BE PRA CTICALLY AND LOGICALLY HIGHER THAN THAT OF THE INTEREST IS PAID IN HYPOTHECATION OF STOCK WHER E PAPER WORK IS INVOLVED. HE FURTHER RECORDED THAT NO EVIDENCE HAS BEEN BROUGHT ON RECOR D WHICH SHOWS UNSECURED LOANS AVAILABLE IN THE AREA OF BUSINESS DURING THE YEAR AT LOWER RA TES. FURTHER THAT THE RATE OF INTEREST WILL DEFINITELY BE LESSER IN RESPECT OF THE PARTNERS SIN CE THE PARTNERS HAVE INTEREST IN PROFITS AND EVEN THE PARTNERS MAY AGREE TO FORGO THE CAPITAL IN TEREST ALSO. ON THIS PREMISE, THE PAYMENT OF 18% INTEREST TO THE PARTIES LENDING UNSECURED LO ANS HAVE REASONABLY GIVEN BY THE LD. CIT(A) AND DISALLOWANCE MADE BY THE AO HAS BEEN DEL ETED. THE REASONS FOR ALLOWING THE INTEREST @ 18% AS ASSIGNED BY THE LD. CIT(A) IS, AC CORDING TO US, JUSTICIABLE SO FAR AS THE INTEREST OF THE BUSINESS IS CONCERNED. WE THEREFO RE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THE GROUND PREFERRED BY THE REVENUE IN THIS RESPECT IS HEREBY DISMISSED. 21. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 2054/AHD/2012 IS DISMISSED. - 9 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 ASSESSEES CROSS OBJECTION NO.213/AHD/2012 - AY 20 09-10 22. THE SOLE GROUND RAISED BY THE ASSESSEE IN THIS CROSS OBJECTION HAS ALREADY BEEN DEALT WITH IN THE APPEAL PREFERRED BY THE ASSESSEE. THUS , THE GROUNDS RAISED IN THE CROSS OBJECTION ARE ACCORDINGLY DECIDED AND DOES NOT CALL FOR SEPAR ATE ADJUDICATION. 23. IN THE RESULT, ASSESSEES CROSS OBJECTION NO.21 3/AHD/2012 IS DISMISSED AS INFRUCTUOUS. ITA NO.1835/AHD/2014 AY 2010-11 ASSESSEES APPE AL 24. THE INSTANT APPEAL HAS BEEN FILED BY THE ASSESS EE AGAINST THE ORDER DATED 16.05.2014 PASSED BY THE CIT(A), GANDHINAGAR, AHMEDABAD FOR A Y 2010-11 ARISING OUT OF THE ORDER DATED 22.03.2013 PASSED BY THE JT.CIT, PATAN RANGE, PATAN. 25. THE FIRST TWO GROUNDS RAISED BY THE ASSESSEE QU ESTIONING THE CORRECTNESS OF THE ORDER PASSED BY THE LD.CIT(A) IN RESTRICTING DISALLOWANCE U/S.14A AT RS.24,39,160/- AS AGAINST DISALLOWANCE MADE BY THE AO AT RS.26,36,551/- WHEN NO SUCH DISALLOWANCE IS CALLED FOR. IN FACT, BOTH THE ISSUES NO.1 & 2 ARE INTER-RELATED AN D THUS DEALT WITH ANALOGOUSLY. 26. WHILE MAKING DISALLOWANCE U/S.14A R.W.RULE 8D, THE LD.AO OBSERVED THAT IN THE ASSESSMENT YEAR I.E. 2009-10 A SUM OF RS.19,65,003 /- WAS DISALLOWED IN TERMS OF SEC.14A OF THE ACT AGAINST WHICH NO APPEAL PREFERRED BY THE AS SESSEE BEFORE THE LD. CIT(A). THE SAME POINT WAS FURTHER RAISED BY THE LD.CIT(A) WHEN THE ASSESSEE SUBMITTED THAT THOUGH IN THE STATEMENT OF FACTS SUCH ISSUE WAS SUBMITTED IN DETA IL BUT INADVERTENTLY THE SAME WAS NOT TAKE TAKEN BEFORE THE LD.CIT(A). 27. IN FACT, THE SIMILAR GROUND WAS PRESSED BEFORE US AGAINST THE ORDER PASSED BY THE AO FOR THE AY 2009-10 IN ITA NO.2049/AHD/2012 WHICH HA S BEEN ALLOWED AND RESTORED TO THE - 10 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 FILE OF THE AO FOR FRESH ADJUDICATION. WE THUS FIN D NO REASON TO ENTERTAIN THE ORDER PASSED BY THE AUTHORITIES BELOW IN THIS RESPECT TO AVOID MUL TIPLE PROCEEDINGS. WE RESTORE THE ISSUE TO THE FILE OF THE LD.AO TO READJUDICATE THE SAME AT PAR WITH THE ORDER TO BE PASSED ON THIS ISSUE FOR THE AY 2009-10. NEEDLESS TO SAY REASONABLE OPP ORTUNITY BE GIVEN TO THE ASSESSEE WHILE ADJUDICATING THE ISSUE BY THE AO. THUS, THE GROUND PREFERRED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 28. THE THIRD ISSUE RELATES TO VALIDITY OF THE ORDE R PASSED BY THE LD.CIT(A) IN UPHOLDING THE ADDITION MADE BY THE AO OF RS.1,01,000/- ON ACC OUNT OF SALARY PAYMENT U/S.40A(2)(B) WHEN NO DISALLOWANCE WAS CALLED FOR. THE SAME IS SUE WAS CONSIDERED BY US IN ASSESSEES OWN CASE IN ITA NO.2049/AHD/2012 FOR AY 2009-10 WHE RE WE HAVE PASSED ORDER AS FOLLOWS:- THE FOURTH GROUND RELATES TO THE ORDER OF DISALLOW ANCE OUT OF TOTAL INTEREST EXPENSES/SALARY BEING EXCESS U/S.40A(2)(B) OF THE ACT. THE ASSESSE E MADE PAYMENT OF SALARY TO PERSONS WHO ARE COVERED BY SECTION 40A(2)(B) OF THE ACT. THE A SSESSEE WAS PAYING RS.5,000/- TO THREE EMPLOYEES AND RS.7,000/- TO OTHER THREE OFFICE CLER KS WHICH ACCORDING TO THE ASSESSEE WAS NORMAL AND NOT UNREASONABLE. HOWEVER, THE LD.AO IN VOKING SECTION 40A(2)(B) OF THE ACT MADE DISALLOWANCE ON THE PREMISE THAT THE ASSESSEE HAS FAILED TO FILE THE DETAILS OF SERVICES, NATURE OF DUTIES TO PROVE PAYMENT OF THOSE EMPLOYEE S TO SHOW THE REASONABLENESS. IN FACT, THE ASSESSEE HAS SUBMITTED SUCH DETAILS IN THE COUR SE OF ASSESSMENT PROCEEDING ALONG WITH SUBMISSION DATED 05.12.2011 WHICH IS ALSO EVIDENT A T PAGE NO.21 OF THE PAPER-BOOK. AT THE TIME OF HEARING OF THE INSTANT APPEAL, LD.AR SUBMITTED BEFORE US THAT THE SERVICES RENDERED BY THE EMPLOYEES IN THE BUSINESS OF THE AS SESSEE AND THE PAYMENT OF SALARY TOWARDS SUCH PERFORMANCE WAS NOT DISPUTED BY THE DEPARTMENT IN THE EARLIER ASSESSMENT YEARS. HE, THEREFORE, PRAYS FOR SETTING ASIDE THE ORDER OF DIS ALLOWANCE ON SUCH COUNT. THE LD. DR, HOWEVER, RELIES UPON THE ORDER PASSED BY THE AUTH ORITIES BELOW. WE HAVE HEARD BOTH THE PARTIES. WE HAVE PERUSED TH E RELEVANT RECORDS RELATING TO THE ISSUE. WE HAVE FOUND JUSTIFICATION IN THE SUBMISSION MADE BY THE LD.AR PARTICULARLY WHEN NO DELIBERATION HAS BEEN MADE BY THE LD.AO WHILE DEVIA TING FROM HIS EARLIER STAND TAKEN BY REVENUE IN ACCEPTING THE RATE OF IN REGARD OF PAYM ENT OF SALARY AND PERFORMANCE OF THESE EMPLOYEES IN THE EARLIER ASSESSMENT YEAR. WE, THER EFORE, DO NOT JUSTIFY THE ORDERS PASSED BY THE AUTHORITIES BELOW AND DELETE SUCH ADDITION OF RS.1,29,248/-. IN THE RESULT, THE GROUND PREFERRED BY THE ASSESSEE IS ALLOWED. - 11 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 29. WE THEREFORE RELYING UPON OUR OWN DECISION PASS ED IN ASSESSEES OWN CASE AS MENTIONED HEREINABOVE, DIRECT THE AO TO DELETE THE ADDITION OF RS.1,01,000/- MADE ON ACCOUNT OF SALARY PAYMENT U/S.40A(2)(B) OF THE ACT. IN THE RESULT, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 30. THE FOURTH GROUND IS AGAINST UPHOLDING THE ADD ITION MADE BY THE AO FOR RS.8,741/- ON ACCOUNT OF INTEREST OF LATE PAYMENT OF EXCISE DUTY. IN FACT, THE APPELLANT HAS MADE INTEREST PAYMENT OF RS.8,741/- TOWARDS LATE PAYMENT OF EXCI SE DUTY WHICH WAS CONSIDERED AS PENAL IN NATURE AND INVOKING EXPLANATION 2 TO SECTION 37 OF THE ACT, THE AO HAS DISALLOWED THE SAME. THE AO CONTENDED THAT THE ASSESSEE HAS MADE INTERES T ON LATE PAYMENT OF EXCISE DUTY WHICH IS NOT ALLOWABLE AS REVENUE EXPENDITURE. IT IS WEL L SETTLED THAT INTEREST ON BELATED PAYMENT OF EXCISE DUTY IS COMPENSATORY IN NATURE AND IS NOT IN THE NATURE OF PENALTY OR OFFENCE IN TERMS OF EXPLANATION 1 TO SECTION 37 OF THE ACT. THUS, W E FIND MERIT IN THE PLEA OF THE ASSESSEE FOR THE CLAIM OF INTEREST AMOUNT AS BUSINESS EXPENDITUR E AND WE THEREFORE DELETE THE ADDITION. THUS, ASSESSEES THIS GROUND OF APPEAL IS ALLOWED. 31. WE SUMMARIZE THE RESULT AS UNDER:- (I) ASSESSEES APPEAL IN ITA NO.2049/AHD/12 FOR AY 2009 -10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. (II) REVENUES APPEAL IN ITA NO.2054/AHD/12 FOR AY 2009- 10 IS DISMISSED. (III) ASSESSEES CO NO.213/AHD/12 FOR AY 2009-10 IS DISMI SSED. (IV) ASSESSEES APPEAL IN ITA NO.1835AHD/12 IS ALLOWED F OR STATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 04 / 07/2018 SD/- SD/- ( PRADIP KUMAR KEDIA ) ( MS. MADHUM ITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 04/ 07/2018 .., .../ T.C. NAIR, SR. PS - 12 - ITA NOS. 2049/AHD/12, 2054/AHD/12,CO NO.213/AHD/12 AND ITA NO.1835/AHD/14 M/S.AMRUT POLYMERS VS. ITO/JT.CIT ASST.YEARS 2009-10 & 2010-11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A)-GANDHINAGAR, AHMEDABAD 5. $%& , ' , / DR, ITAT, AHMEDABAD 6. &*+ ,- / GUARD FILE. / BY ORDER, $ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, / ITAT, AHMEDABAD 1. DATE OF DICTATION ..14/15/25.6.18 (DICTATION-PAD 39+8 PAGES ATTACHED AT THE END OF THIS APPEAL-FI LE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15/18.6.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.4.7.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 4.7.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER