The ACIT, (OSD), Circle-10, Ahmedabad V. M/s. Sanskrut Trust, Ahmedabad

ITA 2054/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8567 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 10-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BHARAT SHAH A R
• Keywords: Related party transaction

Judgement Text

, CH CHCH CH IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , EKUHK CKSJM , BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI, MANISH BORAD, ACCOUNTANT MEMBER ITA NO. 2054 /AHD/201 5 ( / ASSESSMENT YEAR: 2011-12) DCIT, CIRCLE 5(2), AHMEDABAD. / VS. M/S. SANSKRUT TRUST, 1 ST FLOOR, SNASKRUT, NR.OLD GUJARAT HIGH COURT, NAVRANGPURA, AHMEDABAD 380 009 ./ ./ PAN/GIR NO. : AAHTS 4319 R ( !' / APPELLANT ) .. ( #' / RESPONDENT ) !' $ / APPELLANT BY : SHRI MUDIT NAGPAL, SR. D.R. #' % $ / RESPONDENT BY : SHRI BHARAT SHAH, A.R. & '( % )* / DATE OF HEARING 22/02/2018 +,-. % )* / DATE OF PRONOUNCEMENT 04/04/2018 / / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5, AHMEDABAD, VIDE APPEAL NO.CIT(A)-XVI/AC(OSD)/CIR-10/111/2014-15 AND NOW CI T(A)- 5/AC(OSD)/CIR.10/419/2014-15 DATED 20/04/2015 FOR THE ASSESSMENT YEAR (AY) 2011-12. ITA NO.2054 /AHD/15 DCIT VS. M/S. SANSKRUT TRUST. ASST.YEAR 2011-12 - 2 - 2. THE SUBSTANTIVE GRIEVANCE OF THE REVENUE READS AS UNDER:- (1) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE APPEAL ON THE ISSUE OF DISALLOWANCE OF INTEREST AMO UNTING TO RS.35,90,804/- MADE INVOKING THE PROVISIONS OF SECT ION 40A(2)(B) OF THE I.T.ACT WITHOUT PROPERLY APPRECIATING THE FA CTS OF THE CASE. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. (3) IT IS THEREFORE PRAYED THAT THE ORDER OF T HE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICE R BE RESTORED TO THE ABOVE EXTENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ENGAGED IN THE BUSI NESS OF MONEY LANDING AND HAS SHOWN INCOME FROM PROFITS AND GAINS OF BUSINESS. 4. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICE D BY THE AO THAT ASSESSEE HAS ACCEPTED UNSECURED LOAN FROM 34 PARTIE S AND GIVEN LOANS AND ADVANCES TO 21 PARTIES. OUT OF 34 PARTIES UNDER UNS ECURED LOAN, THE ASSESSEE HAS PAID INTEREST AT THE RATE OF 12.5% TO 16 PARTIES, AT THE RATE OF 12% TO 6 PARTIES. WHEREIN, ASSESSEE HAS CHARGED INT EREST AT THE RATE OF 8% FROM 17 RELATED PARTIES AND AT 6% FROM 2 PARTIES. 5. AFTER OBSERVING THIS, LD. AO HELD THAT IT CAN BE SAFELY CONCLUDED THAT THE ASSESSEE, ON ONE HAND, CHARGING 8% OF INTE REST ON LOANS AND ADVANCES AND ON THE OTHER HAND THE ASSESSEE IS PAYI NG INTEREST EXPENSES TO MAJORITY OF ITS RELATED PARTIES AT 12% OR 12.5%. IN THIS MANNER, THE ASSESSEE HAS MANAGED TO PAY INTEREST AT 12% OR 12.5 % TO MAJORITY OF ITS ITA NO.2054 /AHD/15 DCIT VS. M/S. SANSKRUT TRUST. ASST.YEAR 2011-12 - 3 - RELATED PARTIES AND HAS TAKEN INTEREST 8% OR LOWER FROM MAJORITY OF ITS RELATED PARTIES. 6. LD. AO FURTHER HELD THAT THE FOLLOWING TABLE REP RESENTS THE BREAKUP OF INTEREST EXPENSES, INTEREST CHARGED BY ASSESSEE AND INTEREST INCOME SHOWN BY THE ASSESSEE FOR RELATED AND UNRELATED PAR TIES SEPARATELY. 7. ON PERUSAL OF THE BELOW TABLE, IF A MERE AND SUP ERFICIAL COMPARISON OF NET INTEREST INCOME CHARGED FROM RELATED AND UNR ELATED PARTIES ARE COMPARED, IT IS SEEN THAT THE ASSESSEE HAS EARNED N ET INTEREST INCOME OF RS.3,99,10,816/- FROM UNRELATED PARTIES. ON THE OTH ER HAND THE ASSESSEE HAS INCURRED A NET LOSS OF RS.3,26,32,132/- FROM RE LATED PARTIES. PAYING INTEREST AT SUCH HIGH RATE OF INTEREST FROM RELATED PARTIES AT A RATE OF 12 OR ABOVE AND CHARGING INTEREST INCOME AT LOWER RATE OF INTEREST HAS GIVEN A BENEFIT OF LOSS OF RS.3,26,32,132/- WHICH IN TURN U TILIZED TO SET OFF INCOME EARNED BY GIVING LOANS AND ADVANCES. RELATED PARTY TRANSACTION UNSECURED LOAN LOANS AND ADVANCES NO OF PARTIES RATE OF INTEREST NO OF PARTIES RATE OF INTEREST 16 12.5 17 8 6 12 2 6 1 10 1 5 8 8 1 13 3 5 8. AS PER AO A SIGNIFICANT AMOUNT OF LOAN HAS BEEN TAKEN FROM RELATED PARTIES AND RELATED PARTIES ALSO FROM SIGNI FICANT NUMBER OUT OF ITA NO.2054 /AHD/15 DCIT VS. M/S. SANSKRUT TRUST. ASST.YEAR 2011-12 - 4 - TOTAL PARTIES, THIS ACT OF ASSESSEE IS RESULTED INT O REDUCING PROFITS TO AN EXTENT OF OVER AND ABOVE 8% OF INTEREST EXPENSES CL AIMED. ALSO, WHEN IT COMES TO CHARGING OF INTEREST FROM RELATED PARTIES, THE ASSESSEE HAS ADVANCED AMOUNT TO RELATED PARTIES AT THE RATE OF 8 % TO ALMOST ALL, EXCEPT ONE, WHICH IS AT 13%. SO, ASSESSEE PAYS HIGHER INTE REST EXPENSES AT HIGHER RATE AND CHARGES LOWER INTEREST INCOME AT 8% FROM L OANS AND ADVANCES FROM RELATED PARTIES AND CALCULATED THE DISALLOWANC E AS BELOW: NO. OF PARTIES RATE OF INTEREST INTEREST EXPENSE AMOUNT OF INTEREST TO BE DISALLOWED IN EXCESS OF 8% TOTAL AMOUNT TO BE DISALLOWED FROM INTEREST EXPENSES 16 12.5 3888729 1399942.44 35,90,804 6 12 6565891 2188630.333 1 10 11156 2231.2 (DISALLOWANCE OF RS.35,90,804/-) 9. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 10. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IM PUGNED ORDER. THE QUESTION BEFORE US THAT THE AO HAS MADE DISALLO WANCE OF INTEREST AMOUNTING TO RS.35,90,804/- INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT FOR THE REASON THAT TO SOME RE LATED PARTIES. THE ASSESSEE HAS PAID THE INTEREST AT THE RATE OF 12.5% , 12% AND 10%. HOWEVER, ON CERTAIN LENDING TO THE RELATED PARTIES INTEREST HAS BEEN CHARGED AT THE RATE OF 8% OR LOWER RATE. SO THE DIF FERENCE OF THE ABOVE RATES WERE CONSIDERED FOR DISALLOWANCE U/S.40A(2)(B ) OF THE I.T. ACT. ITA NO.2054 /AHD/15 DCIT VS. M/S. SANSKRUT TRUST. ASST.YEAR 2011-12 - 5 - 11. LD. AR STATED THAT THE RATE OF INTEREST DEPENDS UPON THE NUMBER OF FACTORS SUCH AS AMOUNT OF LOAN, PERIOD OF LOAN, CRE DITWORTHINESS OF THE PARTIES ETC. SINCE THE BUSINESS OF THE APPELLANT WA S OF FINANCING, THESE INTEREST RATE KEEPS ON CHANGING DEPENDING UPON THE DEMAND AND SUPPLY OF FUND REQUIREMENTS. SINCE THE ASSESSEE FIRST HAS HAVING THE SURPLUS FUNDS AND THERE WAS NO DEMAND THAT IS WHY THE SURPL US FUNDS GIVEN TO THE PARTIES ON LOWER RATE OF INTEREST. FURTHER ALSO IT WAS ARGUED BY THE LD. AO THAT THE INTEREST RATES DEPEND UPON VARIOUS OTHER F ACTORS ALSO LIKE THE BORROWED/ADVANCES ARE CALL MONEY OR FOR FIXED PERIO D. 12. JURISDICTIONAL HIGH COURT IN THE MATTER OF AADI TYA MEDICALS LTD. VS. CIT IN TAX APPEAL NO.559 OF 2009, WHEREIN, THE INTEREST AT THE RATE OF 24% TO THE RELATED PARTIES WAS TREATED TO BE ALLOWA BLE. THUS IT DOES NOT WARRANT ANY DISALLOWANCE U/S.40A(2)(B) OF THE I.T. ACT. 13. WE ARE AGREE WITH THE ARGUMENTS OF LD. AR THAT INTEREST DEPEND UPON THE NUMBER OF FACTORS SUCH AS AMOUNT OF LOAN, PERIOD OF LOAN, CREDITWORTHINESS OF THE PARTIES ETC. 14. IN VIEW OF THE ABOVE SAID DISCUSSION AND RESPEC TFULLY FOLLOWING THE JURISDICTIONAL HIGH COURTS JUDGMENT, WE DISMISS AP PEAL OF THE DEPARTMENT. ITA NO.2054 /AHD/15 DCIT VS. M/S. SANSKRUT TRUST. ASST.YEAR 2011-12 - 6 - 14. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT I S DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 04 / 0 4 /201 8 SD/- SD/- EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YS[KK LNL; U;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; ( MANISH BORAD ) (MAHAVIR PRASA D) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 04/04/2018 PRITI YADAV, SR. PS !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) ( !) / THE CIT(A)-5, AHMEDABAD. 5. 678 )'12 , !* 12. , 0 / DR, ITAT, AHMEDABAD 6. 89 :( / GUARD FILE. % & / BY ORDER, #6!) ) //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 26/02/2018 (DICTATION-PAD 4 PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27/02/2018 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. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 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