Shri Anurag Goel, Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-5(2), Ahmedabad

ITA 2698/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8240 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 18-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.2698/AHD/2016 / ASSTT. YEAR: 2013-2014 ANURAG GOEL DELTA GLOBAL INC. 903, SAFFRON TOWER OPP: CENTRAL MALL, PANCHVATI, AMBAWADI, AHMEDABAD. VS DCIT, CIR.5(2) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : WRITTEN SUBMISSIONS REVENUE BY : SHRI PRASOON KABRA, SR.DR / DATE OF HEARING : 13/04/2018 / DATE OF PRONOUNCEMENT: 10/05/2018 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A), AHMEDABAD-5 DATED 9.9.2016 PASSED FOR THE ASSTT.YEA R 2013-14. 2. SOLITARY GRIEVANCE OF THE ASSESSEE RELATES TO RE STRICTION OF PAYMENT OF INTEREST TO 15% INSTEAD OF INTEREST AT THE RATE OF 24% PAID BY THE ASSESSEE TO THE PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S PAID INTEREST ON THE LOANS AVAILED FROM 10 PERSONS. RATE OF INTEREST PA ID WAS 24%. THE LD.AO OBSERVED THAT THE SAME IS EXORBITANT, AND ACCORDING LY SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO EXPLAIN AS TO WHY RATE OF INTEREST SHOULD NOT BE RESTRICTED TO 15%. THE ASSESSEE EXPLAINED THAT LOA N TAKEN FROM RELATIVES ARE TOTALLY UNSECURED AND NO SECURITY WAS PROVIDED FOR SUCH LOAN. INTEREST ON SUCH LOAN WITHOUT SECURITY OR FORMALITY ALWAYS REMAINS O N HIGHER RATE, AND ITA NO.2698/AHD/2016 2 THEREFORE, COMPARATIVELY, RATE OF INTEREST CHARGED TO THE ASSESSEE IS REASONABLE AND JUSTIFIABLE. THE LD.AO DID NOT ACCEPT THIS SUB MISSION OF THE ASSESSEE AND OBSERVED THAT THE RATE OF INTEREST PAID BY THE ASSE SSEE WAS MUCH HIGHER THAN THE PREVAILING MARKET, AND THEREFORE, THE AO RESTRI CTED THE INTEREST TO 15% RESULTING IN PROPORTIONATE DISALLOWANCE OF RS.10,18 ,724/-. APPEAL TO THE CIT(A) DID NOT SUCCEED, HENCE, THE ASSESSEE IS IN F URTHER APPEAL BEFORE US. 4. ASSESSEE FILED WRITTEN SUBMISSIONS ON THE ISSUE. IN THE WRITTEN SUBMISSIONS, THE ASSESSEE INTER ALIA PLEADED THAT THE RATE OF INTEREST AT 15% ESTIMATED BY THE AO IS WITHOUT ANY BASIS OR VALID C OMPARABLE INSTANCES. THE AO HAS NOT ASSIGNED ANY SPECIFIC REASON FOR TREATIN G THE RATE OF INTEREST AT 24% AS EXCESSIVE AND UNREASONABLE. THE AO FAILED TO CONSIDER THE FACT THAT LOAN TAKEN FROM RELATIVES ARE TOTALLY UNSECURED AND WITHOUT ANY COLLATERAL SECURITY, AND SUCH TYPE OF LOANS ALWAYS ATTRACT HIG HER RATE OF INTEREST. IT IS ALSO PLEADED THAT THE TRIBUNAL IN THE ASSESSEES OWN CAS E FOR A.Y.2012-13 CONSIDERED SIMILAR ISSUE IN ITA NO.2906/AHD/2015 WH EREIN THE TRIBUNAL OBSERVED THAT THE RATE OF INTEREST CHARGED BY THE A SSESSEE AT 24% ON UNSECURED LOAN IS NOT EXCESSIVE. ASSESSEE PLACED ON RECORD C OPY OF TRIBUNALS ORDER DATED 29.8.2017 TO SUPPORT HIS CASE. THE LD.DR ON THE OTHER HAND, SUPPORTED ORDERS OF THE REVENUE AUTHORITIES. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 40A(2)(B) CONTEMPLATES T HAT IF AN ASSESSEE INCURS EXPENDITURE FOR AVAILING THE SERVICES OF PERSONS WH O ARE CLOSELY ASSOCIATED WITH THE ASSESSEE-COMPANY OR THE MANAGEMENT, AND MA DE PAYMENT TO SUCH PERSONS IN EXCESS TO THE MARKET RATE, THEN, THAT EX TRA PAYMENT WILL NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IN OTHER WOR DS, IF SERVICE IS BEING AVAILED BY AN ASSESSEE FROM THE PERSON FALLING UNDE R SECTION 40A(2)(B), AND THE SIMILAR SERVICE WAS AVAILED FROM OPEN MARKET ON A LESSER RATE, THEN, THE ITA NO.2698/AHD/2016 3 DIFFERENCE BETWEEN THOSE RATES COULD NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IN THE PRESENT CASE, THE ASSESSEE HAS A VAILED LOAN FROM THE PERSONS COVERED UNDER SECTION 40A(2)(B) AND PAID INTEREST A T THE RATE OF 25%. THIS, ACCORDING TO THE AO IS EXCESSIVE AND UNREASONABLE A ND HIGHER THAN THE ONE AVAILABLE FROM THE OPEN MARKET. I AM OF THE VIEW T HAT THIS OBSERVATION IS FAR FROM REALITY AND WITHOUT BASIS, CONSIDERING THE FAC T THAT THE LOAN TAKEN BY THE ASSESSEE IS WHOLLY UNSECURED AND WITHOUT ANY COLLAT ERAL SECURITIES. IT IS FREE FROM ROUTINE QUAGMIRE OF FORMALITIES AS ONE WILL BE FACED IN THE CASE OF UNSECURED LOANS PROVIDED BY VARIOUS BANKS AND FINAN CIAL INSTITUTIONS. THEREFORE, CONSIDERING RISK FACTOR INVOLVED IN DISC HARGE OF LOANS WITHOUT ANY SECURITIES AND PROPER DOCUMENTATION, I DO NOT FIND THAT THE RATE OF INTEREST CHARGED TO THE ASSESSEE TO BE EXCESSIVE OR UNREASON ABLE. FURTHER, EVEN THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2012-13 ALL OWED SIMILAR CLAIM OF THE ASSESSEE ON THE SAME FOOTING. THEREFORE, FOLLOWING THE BINDING ORDER OF THE DIVISION BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SE CITED SUPRA, I ALLOW THE APPEAL OF THE ASSESSEE AND DELETE DISALLOWANCE OF R S.10,18,724/- MADE BY THE REVENUE AUTHORITIES. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 10 TH MAY, 2018 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 10/05/2018