M/s. Western Gum & Chemical Industries, Jamnagar V. The Income tax Officer,Ward-3(4), Ahmedabad

ITA 218/AHD/2011

• Counselvise Citation: 21820514 RSA 2011
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 27-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: HASMUKHBHAI VACHHANI PARTNER
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.218 / AHD/2011 (ASSESSMENT YEAR 2007-08) M/S. WESTERN GUM & CHEMICAL INDUSTRIES, C/O PARIKH & CO. RANJIT ROAD, JAMNAGAR VS. ITO, WARD 3(4), AHMEDABAD PAN/GIR NO. : AAPFS4468M (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI HASMUKHBHAI VACHHANI, PARTNER RESPONDENT BY: SHRI K MADHUSUDAN, SR. DR DATE OF HEARING: 04.11.2011 DATE OF PRONOUNCEMENT: 23.12.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A) XVI, AHMEDABAD DATED 06.12.2010 FOR THE ASS ESSMENT YEAR 2007-08. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE LEARNED CIT(A)-XVI, AHMEDABAD ERRED AN D WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 395000/ - U/S. 40A(2)(B) BEING INTEREST PAID TO RELATIVES AT 3%, OUT OF 15% PAID ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THAT THE LEARNED CIT(A)-XVI, AHMEDABAD ERRED A ND WAS NOT JUSTIFIED IN NOT CONSIDERING THE ADDITIONAL GROUND RAISED BEFORE HIM AND THERE BY NOT ENHANCING THE REMUNERATION PAYABLE TO PARTNERS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT THE APPELLANT CRAVES LEAVE TO AND/OR TO A MEND AND/OR TO ALTER TO AND/OR TO SUBSTITUTE TO ALL OR ANY OF THE GROUNDS OF APPEAL UPTO THE HEARING OF APPEAL. I.T.A.NO. 218 /AHD/2011 2 2. SHRI HASMUKHBHAI VACHHANI, PARTNER OF THE ASSESS EE FIRM APPEARED BEFORE US AND SUBMITTED THAT THE APPEAL MAY BE DECI DED ON THE BASIS OF THE WRITTEN SUBMISSION DATED 01.11.2011 FILED BY TH E ASSESSEE ON 04.11.2011. LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. IN THE FIRST GROUND OF APPEAL, THE ISSUE IS REGARDING DISALLOWAN CE MADE BY THE A.O. OF RS.3.95 LACS U/S 40A(2)(B) FOR INTEREST PAID TO REL ATIVE @ 15% OUT OF WHICH THE A.O. MADE DISALLOWANCE TO THE EXTENT OF 3 % I.E. 1/5 TH OF THE TOTAL INTEREST PAID BY THE ASSESSEE TO THE RELATED PERSONS. IT WAS THE SUBMISSION OF THE ASSESSEE BEFORE US THAT ONLY IN O NE CASE, THE RATE OF INTEREST PAID BY THE ASSESSEE WAS 12% AND THE A.O. MADE DISALLOWANCE TO THE EXTENT OF 1/5 TH OF THE INTEREST AMOUNT PAID TO THIS PARTY ALSO. I T IS ALSO SUBMITTED THAT RATE OF INTEREST BEING CHARGED BY TH E BANKS IS IN THE RANGE OF 14-14.25% AND IT IS SUBMITTED THAT THE COPY OF B ANK STATEMENT OF STATE BANK OF INDIA AND NARODA NAGRIK COOP BANK LTD. FOR THIS VERY YEAR ARE ENCLOSED WITH THE W3RITTEN SUBMISSION AS PER WHICH RATE OF INTEREST BEING CHARGED BY THE STATE BANK OF INDIA IS @ 14.25% AND BY THE NARODA NAGRIC COOP BANK LTD IS @ 14%. IT IS SUBMITTED THA T BECAUSE THE BANK LOANS ARE SECURED LOANS AND THERE ARE MANY FORMALIT IES FOR THE SAME AND HENCE, THE RATE OF INTEREST PAID BY THE ASSESSEE TO THE RELATED PERSONS @ 15% IS NOT EXCESSIVE. WE ARE SATISFIED WITH THIS C ONTENTION BECAUSE WE FIND THAT AS PER THE BANK STATEMENT OF STATE BANK O F INDIA AND NARODA NAGRIK COOP BANK LTD. THE RATE OF INTEREST BEING CH ARGED IS @ 14.25% AND 14% RESPECTIVELY. IN THE LIGHT OF THESE FACTS, IT CANNOT BE SAID THAT THE RATE OF INTEREST BEING PAID BY THE ASSESSEE TO THE RELATED PERSON @ 15% IS I.T.A.NO. 218 /AHD/2011 3 EXCESSIVE OR UNREASONABLE. SIMPLY BECAUSE ONE OF T HE LOAN CREDITORS OF THE ASSESSEE WAS CHARGING 12% RATE OF INTEREST, IT CANNOT BE SAID THAT IT IS THE MARKET RATE OF INTEREST AND ANY INTEREST PAYMEN T OVER AND ABOVE IS EXCESSIVE OR UNREASONABLE. WE, THEREFORE, DELETE T HIS DISALLOWANCE AND GROUND NO.1 OF THE ASSESSEE STANDS ALLOWED. 3. AS PER GROUND NO.2, IT IS THE CONTENTION OF THE ASSESSEE THAT LD. CIT(A) WAS NOT JUSTIFIED IN NOT CONSIDERING THE ADD ITIONAL GROUND RAISED BY HIM AND THEREBY NOT ENHANCING THE REMUNERATION P AYABLE TO THE PARTNERS IN THE FACTS AND CIRCUMSTANCES OF THE CASE . REGARDING THIS ASPECT, IT HAS BEEN SUBMITTED BY THE ASSESSEE IN TH E WRITTEN SUBMISSIONS BEFORE US THAT IN VIEW OF THE INCREASE IN THE ASSES SED INCOME OF THE ASSESSEE FIRM, ENHANCED REMUNERATION TO THE PARTNER S SHOULD BE ALLOWED. BUT WE FEEL THAT ON THIS ASPECT, WE SHOULD FIRST CO NSIDER THE RELEVANT PROVISIONS OF THE INCOME TAX ACT, 1961. WHEN WE GO THROUGH THE PROVISIONS OF SECTION 40(B), WE FIND THAT AS PER CL AUSE (V) OF SECTION 40(B), REMUNERATION ALLOWABLE TO THE PARTNERS IS DE PENDENT ON THE AMOUNT OF BOOK PROFIT AND NOT ON THE TAXABLE INCOME AS PER THE ASSESSMENT ORDER. AS PER EXPLANATION (3) OF THE SAME SECTION, BOOK PR OFIT HAD BEEN DEFINED AND IT IS PROFIT AS SHOWN IN THE P & L ACCOUNT FOR THE RELEVANT PREVIOUS YEAR. HENCE, IN OUR CONSIDERED OPINION, EVEN IF TH ERE IS SOME ADDITION MADE BY THE A.O. IN THE ASSESSED INCOME, NO EXTRA D EDUCTION IS ALLOWABLE ON ACCOUNT OF REMUNERATION TO THE PARTNERS BECAUSE THE BOOK PROFIT REMAIN THE SAME AND HENCE, ALLOWABLE REMUNERATION ALSO REM AINS THE SAME. THE CASE MAY BE DIFFERENT IF ALLOWABLE REMUNERATION AS PER BOOK PROFIT IS MORE BUT LESS WAS ALLOWED OR CLAIMED EARLIER BECAUS E OF LESSER AMOUNT OF TAXABLE INCOME AND IN THAT SITUATION, REMUNERATION PAYABLE AS PER BOOK PROFIT CAN BE ALLOWED AGAINST THE ENHANCED INCOME I F IT IS FOUND THAT THE I.T.A.NO. 218 /AHD/2011 4 ENHANCED INCOME IS BUSINESS INCOME OF THE FIRM. BU T IN THE PRESENT CASE, THE ASSESSEE IS SEEKING CALCULATION OF REMUNERATION PAYABLE TO THE PARTNERS ON THE BASIS OF THE ASSESSED INCOME WHICH IS NOT P ERMISSIBLE AS PER THE PROVISIONS OF SECTION 40(B) AND HENCE, THIS GROUND OF THE ASSESSEE IS REJECTED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. 5. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (BHAVNESH SAINI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 14/12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15/12.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.22/12 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 23/12 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.23/12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..