Shiv Shankar Rice & General Mills, Kurukshetra V. ITO, Kurukshetra

ITA 237/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5408 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 13-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 08-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH SMC, CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.237 /CHD/2011 ASSESSMENT YEAR : 2007-08 M/S SHIV SHANKAR RICE & GENERAL MILLS VS. THE INCOM E-TAX OFFICER, ROSHANPURA ROAD, WARD 2 ISMAILABAD, KURUKSHETRA. KURUKSHETRA. PAN: ABBPT8796N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY JAIN RESPONDENT BY : SMT.SARITA KUMARI PER SUSHMA CHOWLA, JM THE APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A), DATED 27.12.2010 RE LATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED U/ S 143(3) OF THE INCOME-TAX ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUND OF APPE AL : 1. THE LD.C.I.T.(A) HAS ERRED IN LAW AND ON MERIT IN SUSTAINING ADDITION OF RS.1,47,889/- ON A/C OF UNREASONABLE INTEREST PAYMENT U/S 40(A)(2) WITHOUT EVEN DISCUSSING THE SUBMISSIONS OF THE APPELLANT. THE CIT(A) HAS SUSTAINED THE ADDITION BY MERELY MENTIONING THAT APPELLANT NOT CONTESTED THE INTEREST PAID TO PARTNERS AND OTHER @ 12% P.A. 2 3. THE BRIEF FACTS RELATING TO THE ISSUE ARE T HAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD PAID INTERE ST TO SPECIFIED PERSONS UNDER SECTION 40A(2)(A) OF THE INCOME-TAX A CT. THE ASSESSING OFFICER NOTED THAT THE PAYMENT WERE MADE UNDER SECTION 40A(2)(B) OF THE ACT AS TABULATED AT PAGES 1 & 2 OF THE ASSESSMENT ORDER. THE INTEREST WAS PAID TO THE SAID PERSONS I N EXCESS OF 12%. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE SAID RATE OF INTEREST PAID WAS REASONABLE AS HAVING REGARD TO THE 12% INTEREST PAID TO THE BANK WHICH WHEN COMPOUNDED MONTHLY WORK S TO 5% PER ANNUM. THE FUNDS WERE CLAIMED TO HAVE BEEN UTILIZE D FOR THE PURPOSES OF BUSINESS AND HENCE THE INTEREST PAID WA S CLAIMED TO BE ALLOWABLE. THE ASSESSING OFFICER OBSERVED THAT INT ERST TO THE PARTNERS AND OTHER DEPOSITORS HAD BEEN PAID @ 12% A ND ONLY TO 9 PERSONS COVERED U/S 40A(2)(B) OF THE ACT, INTEREST WAS PAID IN EXCESS OF 12%. ACCORDINGLY, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ALLOWANCE OF INTEREST TO SPECIFIED PERSONS AT THE RATE EXCEEDING 12% WAS UNREASONABLE UNDER SECTION 40A(2) (A) OF THE ACT. ACCORDINGLY, AN ADDITION OF RS.1,47,889/- WAS MADE BY THE ASSESSING OFFICER. THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT LOANS WERE RAISED IN THE EARLIER YEARS AT DIFFERENT RATES OF I NTEREST UPTO 15% PER ANNUM WERE PAID TO THE PERSONS COVERED U/S 40A(2)(B ) OF THE ACT. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE C HANDIGARH BENCH OF THE TRIBUNAL IN SHRI SUSHIL KUMAR V ITO ( ITA NO .701/CHD/2008) AND IT WAS POINTED OUT THAT THE RATES OF INTEREST P AID @ 15% WAS 3 REASONABLE. THE LD. DR FOR THE REVENUE PLACED RELI ANCE ON THE ORDER OF THE CIT(A). 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS UNDER THE PROVISIONS OF SECTION 40A(2)(A) OF THE AC T IT IS PROVIDED THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN R ESPECT OF WHICH THE PAYMENT IS BEING MADE TO PERSONS SPECIFIED IN S UB-SECTION(B), WHERE THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE F AIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH PAYM ENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS, THEN SO MUCH OF T HE EXPENDITURE AS IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. 6. IN THE FACTS OF THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE HAD MADE PAYMENTS OF INTEREST ON LOANS RAISED FROM CERT AIN SPECIFIED PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSING OFFICER HAS TABULATED THE LIST OF PERSONS COVERED U /S 40A(2)(B) OF THE ACT TO WHOM INTEREST IN EXCESS OF 12% WAS PAID BY THE ASSESSEE. THE SAID LIST IS TABULATED AT PAGES 1 & 2 OF THE AS SESSMENT ORDER. ADMITTEDLY, THE ASSESSEE WAS PAYING INTEREST TO THE PARTNERS ON THEIR CAPITAL CONTRIBUTION @ 12% AND EVEN ON DEPOSITS BEI NG RAISED FORM DEPOSITORS OTHER THAN PERSONS COVERED U/S 40A(2)(B) OF THE ACT WAS @ 12%. THE LD. AR WHEN CONFRONTED WITH THE PROVISIO NS OF SECTION 40A(2)(A) OF THE ACT COULD NOT JUSTIFY THE PAYMENT OF INTEREST OF SUCH PERSONS COVERED U/S 40A(2)(B) OF THE ACT AT A RATE HIGHER THAN 12% THOUGH ON SAME DEPOSITS TO OTHER DEPOSITORS INT EREST WAS BEING 4 PAID @ 12%. THE ONLY PLEA OF THE ASSESSEE WAS THA T SIMILAR RATE OF INTEREST HAD BEEN ACCEPTED BY THE TRIBUNAL. WE FIN D NO MERIT IN THE CONTENTION RAISED BY THE LD. AR FOR THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WHERE THE ASSESS EE HIMSELF HAS PAID INTEREST @ 12% TO OTHER DEPOSITORS. THE ASSES SEE HAS FAILED TO ESTABLISH ITS STAND AND THE PROVISIONS OF SECTION 4 0A(2)(A) OF THE ACT ARE INVOKED AND APPLIED TO THE FACTS OF THE PR ESENT CASE. IN THE FACTS OF THE PRESENT CASE WHERE THE ASSESSEE ITSELF IS PAYING INTEREST ON THE LOANS RAISED FROM DEPOSITORS @12% AND EVEN O N CAPITAL RAISED FROM THE PARTNERS @12%, I UPHOLD THE ORDER O F CIT(A) IN CONFIRMING THE ADDITION OF RS. 1,47,889/- AS THE EX PENDITURE INCURRED IS EXCESSIVE HAVING REGARD TO THE MARKET V ALUE OF THE GOODS. THE GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MAY, 2011. SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER DATED : 31 ST MAY, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR