Systronics (India) Limited, Ahmedabad V. The ITO, Ward-2(1)(3), Baroda

ITA 2079/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5361 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 18-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIREN SHAH
• Keywords: Business expenditure
• Section: 37(1); 37

Judgement Text

- , - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO.2079/AHD/2017 [ASSTT.YEAR: 2013-14] SYSTRONICS (INDIA) LTD B/116-129, SUPATH-II COMPLEX NR.JUNA VADAJ BUS TERMINUS ASHRAM ROAD AHMEDABAD 380 013. PAN : AADCS 2709 J VS. ITO, WARD-2(1)(3) BARODA. ( APPLICANT ) (RESPONDENT) ASSESSEE BY : SHRI BIREN SHAH, AR REVENUE BY : SHRI S.K. DEV, SR.DR ! '#$ % &' / DATE OF HEARING : 08/08/2019 ()* % &' / DATE OF PRONOUNCEMENT: 21 /08/2019 +, / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-2, VADODARA DATED 3.5.2017 PASSED FOR THE ASSTT.YEAR 2013-14. 2. ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL. HOWE VER, ITS GRIEVANCE REVOLVES AROUND A SINGLE VIZ. THE LD.CIT( A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.55,37,500/- WHICH WAS ADDED BY THE AO BY RESTRIC TING THE ITA NO.2079/AHD/2017 2 INTEREST EXPENDITURE ALLOWABLE AT THE RATE OF 12% A S AGAINST 18% CLAIMED BY THE ASSESSEE. 3. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE IN THE ASSTT.YEA R 2012-12, AND THE DISPUTE TRAVELLED UPTO THE TRIBUNAL. THE TRIBU NAL HAS DELETED THE DISALLOWANCE VIDE ORDER DATED 9.7.2019 PASSED I N ITA NO.319/AHD/2017. HE PLACED ON RECORD COPY OF THE TR IBUNALS ORDER. ON THE OTHER HAND, THE LD.DR WAS UNABLE TO CONTROVERT THIS FACT. 4. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. WHILE CONSIDERING SIMILAR AS PECTS, THE TRIBUNAL HAS RECORDED THE FOLLOWING FINDING: 2. ASSESSEE HAS TAKE FIVE GROUNDS OF APPEAL, BUT I TS GRIEVANCE REVOLVES AROUND TWO ISSUES VIZ. (A) THE L D.CIT(A) HAS ERRED IN UPHOLDING DISALLOWANCE OF INTEREST AMO UNTING TO RS.63,67,512/-, AND (B) LD.CIT(A) HAS ERRED IN CONF IRMING DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS.22,25 ,767/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COM PANY HAS FILED ITS RETURN OF INCOME ON 26.9.2012 DECLARI NG TOTAL INCOME AT RS.1,96,47,205/-. THE CASE OF THE ASSESS EE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER S ECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. TH E ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BU SINESS OF MANUFACTURING AND TRADING OF SCIENTIFIC ELECTRONICS INSTRUMENTS AND BROADCAST AUDIO VIDEO EQUIPMENTS. IT HAS SHOWN TURNOVER OF RS.4641.06 LAKHS. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE C OMPANY HAS PAID AN INTEREST OF RS.1,91,02,535/- TO ASE LTD . AT THE RATE OF 18% ON UNPAID PRICE OF ELECTRONICS DIVISION . IT FURTHER EMERGES OUT THAT A MEMORANDUM OF UNDERSTANDING WAS EXECUTED WITH ASE LTD. ON 8.5.2010 VIDE WHICH IT WA S AGREED THAT ASE WOULD TRANSFER ITS ELECTRONIC DIVISION TO THE ASSESSEE-COMPANY FOR A CONSIDERATION OF RS.23.77 CR ORES. 50% OF THE CONSIDERATION WAS DECIDED TO BE PAID BY WAY OF ISSUE OF SHARES AND THE BALANCE 50% OF THE CONSIDER ATION ITA NO.2079/AHD/2017 3 BEING UNPAID PRICE CONSIDERATION TO BE PAID BY WAY OF MONTHLY PAYMENT OF RS.7 LAKHS AT A SIMPLE INTEREST OF 12% PER ANNUM COMMENCING FROM EXPIRY OF 3 YEARS FROM TH E DATE OF EXECUTION OF THE MOU. IT IS ALSO PERTINENT TO NO TE THAT INTEREST WAS TO BE PAYABLE FROM THE DATE OF MOU I.E. 8.5.2010. THEREAFTER, SOME CHANGES HAVE BEEN EFFEC TED IN THE RATE OF INTEREST AND THE INTEREST WAS PAID AT T HE RATE OF 18%. THE AO WAS OF THE VIEW THAT INTEREST AT THE R ATE OF 12% IS AVAILABLE IN THE OPEN MARKET AND INTEREST PA ID ON UNPAID CONSIDERATION OVER AND ABOVE 12% DESERVES TO BE DISALLOWED. WITH THE AID OF SECTION 40A(2)B), THE I NTEREST OF RS.63,67,512/- WAS DISALLOWED. THE APPEAL TO THE C IT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT N O DOUBT IN THE MOU DATED 8.5.2010 THE ASSESSEE HAS AGR EED TO PAY SIMPLE INTEREST AT THE RATE OF 12% ON THE UNPAI D PURCHASE CONSIDERATION; BUT LATER ON 1.3.2012 IN TH E BOARD MEETING IT WAS RESOLVED THAT INTEREST WILL BE PAYAB LE AT THE RATE OF 18%. IT WAS ALSO POINTED OUT THAT THE ASSE SSEE HAS SUBMITTED ALL THESE FACTS TO THE AO IN A LETTER DAT ED 2.3.2015. IT WAS POINTED THAT BANK USED TO CHARGE INTEREST AT THE RATE OF 14% ON THE LOAN BORROWED BY THE ASSE SSEE, BUT ON THE LOAN FROM ASE LTD. ASSESSEE WAS NOT REQU IRED TO FURNISH BANK GUARANTEE AND COULD AVOID SO MANY OTHE R HURDLES. THE LD.COUNSEL FOR THE ASSESSEE TOOK US T HROUGH THE REPLY OF THE ASSESSEE REPRODUCED ON PAGE NOS.2 TO 4 OF THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LD.DR REL IED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 5. IT IS PERTINENT TO OBSERVE THAT IN ORDER TO CLAI M EXPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX A CT, THE ASSESSEE IS REQUIRED TO FULFILL CERTAIN CONDITIONS VIZ. (A) THERE MUST BE EXPENDITURE, (B) SUCH EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36, (C) THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EX PENDITURE OR PERSONAL EXPENDITURE OF THE ASSESSEE, AND (D) EX PENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE EXPRESSION WHOLLY EMPLOYED IN SECTION 37 REFERS TO QUANTIFICATION OF EXPENDITURE WHILE EXPRESSION EXCLUSIVELY REFERS T O THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. 6. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE FA CTS OF THE PRESENT CASE. NO DOUBT THE INTEREST EXPENDITUR E INCURRED ITA NO.2079/AHD/2017 4 BY THE ASSESSEE HAS BEEN CONSIDERED BY THE AO AS IN CURRED IN CONNECTION WITH THE BUSINESS. THE DISPUTE BETWE EN THE ASSESSEE AND THE AO RELATES TO RATE OF INTEREST EXP ENDITURE. THE AO WAS OF THE VIEW THAT THE ASSESSEE OUGHT TO H AVE INCURRED INTEREST EXPENDITURE AT THE RATE OF 12% ON LY AND SHOULD NOT HAVE PAID AT 18%. THE AO HAS MADE REFER ENCE TO THE TERMS OF THE MOU EXECUTED ON 8.5.2010, BUT LOST SIGHT OF SUBSEQUENT AMENDMENT CARRIED OUT IN THE RESOLUTION OF THE BOARD OF DIRECTORS. A COPY OF SUCH RESOLUTION PASSE D BY THE BOARD IS PLACED AT PAGE NO.18-19 OF THE PAPER BOOK. WE HAVE PERUSED THIS RESOLUTION, AND THE RELEVANT PART READS AS UNDER: 4. REVISION OF INTEREST RATE ON UNPAID CONSIDERATI ON OF ACQUISITION OF ELECTRONIC UNDERTAKING- THE BOARD WAS INFORMED THAT THERE WERE SERIES OF DISCUSSION AND PERSONAL MEETINGS BETWEEN THE HOLDIN G COMPANY AMBALAL SARABHAI ENTERPRISES LIMITED AND THE COMPANY FROM TIME TO TIME REGARDING REVISION OF RATE OF INTEREST ON UNPAID CONSIDERATION PAYABLE BY THE COMPANY IN RESPECT OF TRANSFER OF ELECTRONIC UNDERTAKING BY WAY OF SLUMP SALE. CONSIDERING THE MATTER IN TOTALITY IT WAS DECIDED TO REVISE THE RAT E OF INTEREST FROM THE PRESENT RATE OF INTEREST @12% TO 18% PER ANNUM WITH EFFECT FROM 1.4.2011 WITH HALF YEARLY RESTS. NOTED AND APPROVED 7. AS FAR AS RATE OF 18% IS CONCERNED, IT IS NOT ON THE HIGHER SIDE BECAUSE ON UNSECURED LOANS, THE TRIBUNA L IS UNANIMOUS IN HOLDING THAT MARKET RATE CAN BE 16% TO 20% BECAUSE IN THAT BORROWINGS THE ASSESSEE USED TO AVO ID PROVIDING BANK GUARANTEE FOR THE LOANS AND ALSO COU LD AVOID EXECUTION OF SO MANY DOCUMENTATION AND OTHER PROCES SING FORMALITIES. THE AO HAS NOT COMPARED THIS 18% WITH THE MARKET RATE OF UNSECURED LOANS. HE HAS COMPARED TH IS RATE WITH THE BANK LOAN VIS--VIS MOU EXECUTED BY THE ASS ESSEE. THEREFORE, WE ARE OF THE VIEW THAT THERE IS NO JUST IFICATION TO DISALLOW BUSINESS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.2079/AHD/2017 5 5. THERE IS NO DISPARITY ON FACTS. THE INTEREST WA S PAID ON THE LOANS FROM ASE LTD. IN THE LAST YEAR AS WELL AS THI S YEAR. THIS IS THE SAME AMOUNT WHICH IS OUTSTANDING IN THIS YEAR A LSO. ACCORDING TO THE ASSESSEE IT HAS AGREED FOR PAYMENT OF INTEREST AT THE RATE OF 18% WHEREAS THE AO WAS OF THE VIEW THAT THIS INTEREST OUGHT TO BE PAID AT THE RATE OF 12%, AND THE AMOUNT OVER AND ABOVE OF 12% HAS BEEN DISALLOWED. SIMILAR AMOUNT H AS BEEN DELETED BY THE TRIBUNAL AS PER THE FINDING EXTRACTE D (SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE EARLIER YEAR, WE DELETE THE DISALLOWANCE IN THIS YE AR ALSO. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 21 ST AUGUST, 2019. SD/- SD/- (PRADIPKUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER