M/s. Ahmedabad Strips Pvt.Ltd., Ahmedabad V. The ACIT,Circle-1, Ahmedabad

ITA 239/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1201 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR WITH PARIN SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NOS: 239 & 1836/AHD/2012 (ASSESSMENT YEARS: 2008-09 & 2009-10) AHMEDABAD STRIPS PVT. LTD. 604, SARAP COMPLEX 6 TH FLOOR, NAVJIVAN PRESS ROAD, B/H. GUJARAT VIDHYAPITH, ASHRAM ROAD, AHMEDABAD-14 V/S THE ACIT, CIRCLE-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCA8222A APPELLANT BY : SHRI S.N. SOPARKAR WITH PARIN SHAH , AR RESPONDENT BY : SHRI K. MADHUSUDAN, SR. D.R. ( )/ ORDER DATE OF HEARING : 08 -07-20 16 DATE OF PRONOUNCEMENT : 12-07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 239 & 1836/AHD/2012 ARE TWO SEPARATE APPEA LS BY THE ASSESSEE PREFERRED AGAINST TWO DIFFERENT ORDERS OF THE LD. CIT(A)-VI, ITA NOS. 239 & 1836/AHD/2012 . A.YS. 2008-0 9 & 2009-10 2 AHMEDABAD DATED 28.11.2011 & 25.07.2012 PERTAINING TO A.YS. 2008-09 & 2009-10 RESPECTIVELY. 2. BOTH THESE APPEALS HAVE COMMON GRIEVANCE, THEREFORE , THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE COMMON GRIEVANCE IN BOTH THESE YEARS RELATE TO THE DISALLOWANCES MADE BY THE A.O. IN RESPECT OF INTERE ST PAID ON BORROWINGS U/S. 40A(2)(B) OF THE ACT AMOUNTING TO R S. 31,10,556/- IN A.Y. 2008-09 AND RS. 41,60,927/- IN A.Y. 2009-10 . 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS AND ON EXAMINATION OF THE TAX AUDIT REPORT FILED BY THE AS SESSEE, THE A.O. FOUND THAT THE ASSESSEE HAS PAID INTEREST TO PERSON S COVERED U/S. 40A(2)(B) OF THE ACT @ 18% PER ANNUM. THE A.O. FURT HER FOUND THAT THE ASSESSEE HAS PAID INTEREST TO PARTIES OTHE R THAN THOSE SPECIFIED U/S. 40A(2)(B) OF THE ACT AT VARYING RATE S OF 6.25%, 12% AND 16%. THE A.O. WAS OF THE FIRM BELIEF THAT SINCE THE MARKET RATE IS 12% PER ANNUM AND SINCE THE ASSESSEE HAS PAID IN TEREST @ 18%, THEREFORE, THE ASSESSEE HAS PAID EXCESSIVE INTEREST TO RELATED PARTIES. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WH Y THE EXCESSIVE INTEREST OVER AND ABOVE 12% SHOULD NOT BE DISALLOWE D. 5. ASSESSEE FILED A DETAILED REPLY IN SUPPORT OF ITS C LAIM OF 18% INTEREST STATING THAT THE RATE OF 18% CANNOT BE CON SIDERED AS UNREASONABLE AND EXCESSIVE. ITA NOS. 239 & 1836/AHD/2012 . A.YS. 2008-0 9 & 2009-10 3 6. THE CLAIM OF THE ASSESSEE DID NOT FIND ANY FAVOUR W ITH THE A.O. WHO WAS OF THE OPINION THAT THE ASSESSEE HAS PAID INTER EST @ 18% TO THE RELATED PARTIES WHEREAS IT HAS PAID INTEREST TO UNRELATED PARTIES @ 12%. THEREFORE, COMPUTED THE DISALLOWANCE BEING DIFFERENCE OF INTEREST @ 18% AND INTEREST @ 12%. ADDITION OF RS. 31,10,556/- WAS MADE IN A.Y. 2008-09, AN ADDITION OF RS. 41,60, 927/- WAS MADE IN A.Y. 2009-10. 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY SUBMITTED THAT PAYMENT OF INTEREST @ 18% PER ANNUM CANNOT BE CONSIDERED AS EXCESSIVE. IN SUPPORT, THE LD. COUNSEL RELIED UP ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF ASIAN MILLS PV T. LTD. IN ITA NOS. 1382/AHD/2011 AND 2161/AHD/2011 AND ALSO ON IN ITA NO. 869/AHD/2010 IN THE CASE OF VIPUL Y. MEHTA. 9. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE REVENUE AUTHORITIES. 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE RIV AL CONTENTIONS AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY BASIS OF THE ASSESSING OFFICER FOR MAKING THE DISALLOWANCE WAS THAT THE ASSESSEE HAS PAID INTEREST TO UNRELATED PA RTIES AT VARYING RATES OF 6%, 12% AND 16%. IN OUR CONSIDERED OPINION , SOLELY BECAUSE ASSESSEE HAD PAID INTEREST AT DIFFERENT RAT ES TO DIFFERENT PARTIES, THAT ITSELF COULD NOT BE A GROUND TO COME TO THE CONCLUSION THAT PAYMENT OF INTEREST TO RELATED PARTIES AT RATE OTHER THAN THAT ITA NOS. 239 & 1836/AHD/2012 . A.YS. 2008-0 9 & 2009-10 4 PAID TO OTHER PARTY WAS EXCESSIVE AND UNREASONABLE. OUR VIEW IS FORTIFIED BY THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT OF GUJARAT GIVEN IN THE CASE OF SARJAN REALITIES LTD. IN TAX APPEAL NO. 657 OF 2014 50 TAXMANN.COM 52. THE RELEVANT PART O F THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS U NDER:- IT IS REQUIRED TO BE NOTED THAT IT IS THE CONTENTI ON ON BEHALF OF THE REVENUE THAT AS SUCH THE COMPANY PAID THE INTEREST AT DIFFE RENT RATES TO DIFFERENT PERSONS/COMPANIES AND THEREFORE, THE SAME WAS RIGHT LY DISALLOWED UNDER SECTION 40A(2)(B). HOWEVER, IT IS REQUIRED TO BE NO TED THAT EXCEPT AFORESAID THERE WAS NO BASIS FOR THE ASSESSING OFFI CER TO COME TO THE CONCLUSION THAT AMOUNT OF INTEREST PAID AT THE RATE OF 12 PER CENT WOULD RELATE TO THE CONCERNED PARTIES WAS OTHERWISE EXCES SIVE AND/OR UNREASONABLE. IT IS NOT THE CASE ON BEHALF OF THE R EVENUE THAT CONSIDERING THE MARKET RATE THE AFORESAID INTEREST PAID AT THE RATE OF 12 PER CENT CAN BE SAID TO BE EXCESSIVE AND/OR UNREASONABLE. UNDER THE CIRCUMSTANCES, SOLELY BECAUSE THE ASSESSEE FOR WHATEVER REASONS/CO NSIDERATION PAID THE INTEREST AT DIFFERENT RATES BY THAT ITSELF CANNOT B E A GROUND TO COME TO THE CONCLUSION THAT PAYING OF INTEREST AT HIGHER RATE T HAN PAID TO OTHER PARTY WAS EXCESSIVE AND/OR UNREASONABLE. UNDER THE CIRCUM STANCES, BOTH/THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAVE RIGHTLY DELETED THE DISALLOWANCE OF RS. 1.22 CRORES MADE BY THE ASSESSI NG OFFICER UNDER SECTION 40A(2)(B). UNDER THE CIRCUMSTANCES, QUESTIO N IS ANSWERED AGAINST THE REVENUE. [PARA 4.0] 11. IN SO FAR AS THE RATE OF INTEREST AT 18% CONSIDERED TO BE EXCESSIVE, THE CO-ORDINATE BENCH IN THE CASE OF VIP UL Y. MEHTA (SUPRA) HAS HELD THAT THE PAYMENT OF INTEREST @ 18% PER ANNUM TO THE RELATIVES ON UNSECURED LOANS CANNOT BE SAID TO BE EXCESSIVE OR UNREASONABLE. ITA NOS. 239 & 1836/AHD/2012 . A.YS. 2008-0 9 & 2009-10 5 12. CONSIDERING THE FACTS IN TOTALITY, IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HEREINABOVE, WE SET ASIDE THE F INDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED D ISALLOWANCES. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 12 - 07 - 2016. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD