The DCIT, Circle-1(1)(1), Ahmedabad V. M/s. Ahmedabad Strips Private Ltd., Ahmedabad

ITA 2741/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8862 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 06-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: BHAVESH SHAH
• Keywords: Tangible material; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) ITA. NO: 2741/AHD/2017 & C.O. NO. 20/AHD/19 (ASSESSMENT YEAR: 2013-14) DCIT, CIRCLE1(1)(1), AHMEDABAD AHMEDABAD STRIPS PVT. LTD. 604, SARAP COMPLEX NAVJIVAN PRESS ROAD, B/H GUJARAT VIDYAPITH, OFF ASHRAM ROAD, AHMEDABAD-380014 V/S V/S AHMEDABAD STRIPS PVT. LTD. 604, SARAP COMPLEX NAVJIVAN PRESS ROAD, B/H GUJARAT VIDYAPITH, OFF ASHRAM ROAD, AHMEDABAD-380014 DCIT, CIRCLE1(1)(1), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCA 8222A APPELLANT BY : SMT. SONIA KUMAR, SR. D.R . RESPONDENT BY : SHRI BHAVESH SHAH, C.A. ( )/ ORDER DATE OF HEARING : 26 -06-201 9 DATE OF PRONOUNCEMENT : 28 -06-2019 ITA NO 2741/ AHD/2017 & C.O. NO. 20 /AHD/2019 . A.Y. 2013-1 4 2 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. ITA NO. 2741/AHD/2017 & C.O. NO. 20/AHD/2019 ARE AP PEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE DIRECTED AGAINS T THE ORDER OF THE LD. CIT(A)-1, AHMEDABAD DATED 21.09.2017 PERTAINING TO A.Y. 2013-14, AND REVENUE HAS TAKEN FOLLOWING GROUNDS : (1) THAT THE LD.CIT(A) HAS ERRED IN LAW AND O N FACTS IN DELETING THE DISALLOWANCE OF INTEREST U/S 40A(2)(B) OF THE ACT O FRS.1,12,77,760/-. (2) THE APPELLANT CRAVES, TO LEAVE, TO AMEND AN D/OR TO ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE FACTS OF THE CASE ARE THAT DURING THE YEAR THE COMPANY HAS PAID INTEREST @18% P. A. ON UNSECURED LOAN/DEPOSITS OBTAINED FROM ALL PARTIES COVERED U/S 40A(2)(B) AGGREGATING TO RS. 3, 23,58,5457-, AS PER THE MUTUAL AGREED TERMS OF THE UNSECURED LOAN AVAILED FROM THE SAID PARTIES. T HERE IS NO DISCRIMINATION OR DIFFERENCES IN THE RATE OF INTEREST IN RESPECT OF U NSECURED LOAN PARTIES TO WHOM INTEREST IS PAID. IN PREVIOUS YEAR ALSO THE COMPANY HAS PAID INTEREST @ 18% P. A. ON UNSECURED LOANS/DEPOSITS. THE JUSTIFICATION F OR PAYMENT OF INTEREST @ 18% P. A. IS AS UNDER: I) THE INTEREST RATE IS NOT COMPARABLE WITH THE BAN K INTEREST RATE, AS THE ASSESSEE COMPANY HAS BORROWED UNSECURED LOAN FROM PARTIES CO VERED UNDER SECTION 40A(2)(B) OF THE ACT ON LONG TERM BASIS AND WITHOUT ANY PRIMARY OR COLLATERAL SECURITIES. THE LOANS PROVIDED BY BANKS AND FINANCI AL INSTITUTIONS HAVE ADDITIONAL COST OF STAMP DUTY AND REGISTRATION FEES FOR MORTGAGE OF SECURITIES, UPFRONT FEES, PROCESSING FEES, RENEWAL FEES AND OTH ER INCIDENTAL COST LIKE INSPECTION CHARGE, REVIEW CHARGE, AUDIT CHARGE, VAL UATION CHARGE, LEGAI CHARGE, ETC. OVER AND ABOVE INTEREST COST AND ALSO THE SAID LOANS ARE SECURED BY SOME ITA NO 2741/ AHD/2017 & C.O. NO. 20 /AHD/2019 . A.Y. 2013-1 4 3 TANGIBLE SECURITY AND GUARANTEE OF DIRECTORS AND PR OMOTERS. THUS, SUCH LOANS ARE ALSO COSTLY, AS THE COMPANY HAS TO PAY/INCUR AD DITIONAL COST OVER AND ABOVE THE INTEREST PAYABLE TO THE BANK WHEREAS THE UNSECU RED LOANS PROVIDED BY PARTIES, THERE IS NO COLLATERAL SECURITY GIVEN AND IT IS FULLY UNSECURED, WITH HIGHER RISK AND HENCE INTEREST PAID @ 18% P. A. IS REASONA BLE. II) ALL THE PARTIES TO WHOM INTEREST PAID @18% HAVE FILED THEIR RETURN OF INCOME AND PAYING TAX REGULARLY. THE CONFIRMATION O F LEDGER ACCOUNT OF ALL THE PARTIES FROM WHOM UNSECURED LOANS WERE TAKEN DURING THE YEAR WERE SUBMITTED ALONG WITH ACKNOWLEDGEMENT OF RETURN OF INCOME, STA TEMENT OF COMPUTATION OF INCOME ETC. AND AIL PARTIES TO WHOM 18% INTEREST IS PAID HAVE SHOWN THE INTEREST AS INCOME IN THEIR INCOME-TAX' RETURN AND HENCE THERE IS NO ANY REVENUE LOSS. III) PAYMENT OF INTEREST @18% TO THE PARTIES COVERE D U/S 40A(2)(B) OF THE ACT IS NOT EXCESSIVE AND UN-REASONABLE BECAUSE THE COMP ANY HAS PAID INTEREST @18% DUE TO BUSINESS EXPEDIENCY AS IT WAS NOT POSSI BLE FOR THE APPELLANT TO BORROW THE FUND FROM THE BANK OR ANY OTHER PERSONS AND IF THE COMPANY HAD NOT BORROWED THE FUND @18%, FROM PARTIES COVERED U/ S 40A(2)(B) OF THE ACT, THEN IT IS DIFFICULT TO CARRY ON THE BUSINESS AND T HUS FOR THE REQUIREMENT OF CARRYING ON THE BUSINESS THE APPELLANT COMPANY HAS BORROWED THE FUND @18% AND HAS EARNED PROFIT IN THE BUSINESS AND OFFERED F OR TAXATION, IT IS NOT A CASE WHERE THE COMPANY HAS INCURRED INTEREST COST AND HA S SHOWN BUSINESS LOSS. 3. BUT LD. A.O. WAS NOT AGREE WITH THE CONTENTION OF T HE ASSESSEE AND MADE ADDITION OF RS. 1,12,77,760/- U/S 40A(2)(B). 4. THEREAFTER, ASSESSEE PREFERRED FIRST STATUTORY APPE AL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE. ITA NO 2741/ AHD/2017 & C.O. NO. 20 /AHD/2019 . A.Y. 2013-1 4 4 5. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. AT THE OUTSET, LD. A.R. CITED AN ORDER OF CO-ORDINATE BENCH IN ASS ESSEES OWN CASE IN ITA NO. 3454/AHD/2016 FOR ASSESSMENT YEAR 2012-13. IN ASSES SEES OWN CASE ON SIMILAR GROUND RELIEF WAS GRANTED BY THE CO-ORDINAT E BENCH WHEREAS BEFORE US ASSESSMENT YEAR IS 2013-14. THE CO-ORDINATE BENCH G RANTED RELIEF TO THE ASSESSEE WITH FOLLOWING OBSERVATION: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO TH E PAYMENT OF INTEREST ON THE BORROWED FUND BY THE ASSESSEE AT THE RATE OF 18% PE R ANNUM FROM RELATED PARTIES. AS PER THE AO PREVAILING MARKET RATE OF IN TEREST IS AT THE RATE OF 12% PER ANNUM ON THE BORROWED FUND. SINCE THE ASSESSEE HAS MADE PAYMENT OF INTEREST TO THE RELATED PARTIES AT THE RATE OF 18% PER ANNUM , THEREFORE THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS PAID EXCESSIVE INTEREST TO THE PARTIES OVER AND ABOVE THE PREVAILING MARKET RATE AS PER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. ACCORDINGLY THE AMOUNT OF EXCESS INTEREST AMOUNTING TO RS. 91,73,496/-WAS DISALLOWED BY THE AO. 8.1 THE AO IN THE CASE ON HAND HAS ASSUMED THE PREV AILING MARKET RATE OF INTEREST AT THE RATE OF 12% PER ANNUM ON THE BORROW ED FUND WITHOUT BRINGING ANY TANGIBLE MATERIAL ON RECORD. THEREFORE IN THE ABSEN CE OF ANY MATERIAL BY WHICH THE AO TREATED THE INTEREST PAID BY THE ASSESSEE IS UNREASONABLE/EXCESSIVE, WE ARE NOT IMPRESSED WITH THE FINDING OF THE AO. ITA NO.3454/AHD/2016 ASSTT. YEAR 2012-13 8.2 THERE IS NO DISPUTE ABOUT THE USE OF FUND BORROWED BY THE ASSESSEE AT THE RATE OF 18% PER ANNUM. THUS IT IS TRANSPIRED THAT THE ASSESSEE HAS USED THE BORROWED FUND FOR ITS BUSINESS. ACCORDINGLY, WE ARE OF THE VIEW THAT IT IS THE ASSE SSEE WHO KNOWS ITS BUSINESS AFFAIRS THE BEST THAN ANY OTHER PERSON. ACCORDINGLY , THE ASSESSEE CAN ONLY DECIDE THE NEED FOR THE BORROWING FROM THE RELATED PARTIES INCLUDING THE RATE OF INTEREST. AS SUCH THE AO IS NOT EXPECTED TO DIRECT/ADVICE TO THE ASSESSEE TO BORROW THE MONEY FOR THE BUSINESS AT A PARTICULAR RATE OF INTE REST. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON'BLE H IGH COURT OF DELHI IN CASE OF ORACLE INDIA (P.) LTD. REPORTED IN 11 TAXMANN.COM 1 39. ITA NO 2741/ AHD/2017 & C.O. NO. 20 /AHD/2019 . A.Y. 2013-1 4 5 8.3 WE ALSO NOTE THAT THE ITAT IN THE OWN CASE OF T HE ASSESSEE AS DISCUSSED ABOVE HAS DELETED THE ADDITION MADE BY THE AO VIDE ORDER DATED 12 JULY 2016. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL CONTENTIONS AND HAVE CAREFULLY PERUSED THE ORDER OF THE AUTHORITIES BELO W. THE ONLY BASIS OF THE ASSESSING OFFICER FOR MAKING THE DISALLOWANCE WAS T HAT THE ASSESSEE HAS PAID INTEREST TO UNRELATED PARTIES AT VARYING RATES OF 6 %, 12% AND 16%. IN OUR CONSIDERED OPINION, SOLELY BECAUSE ASSESSEE HAD PAI D INTEREST AT DIFFERENT RATES TO DIFFERENT PARTIES, THAT ITSELF COULD NOT BE A GROUN D TO COME TO THE CONCLUSION THAT PAYMENT OF INTEREST TO RELATED PARTIES AT RATE OTHE R THAN THAT PAID TO OTHER PARTY WAS EXCESSIVE AND UNREASONABLE. OUR VIEW IS FORTIFI ED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT OF GUJARAT GIVEN IN THE CASE OF SARJAN REALITIES LTD. IN TAX APPEAL NO. 657 OF 2014 50 TAXMANN.COM 5 2. THE RELEVANT PART OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT R EADS AS UNDER:- 'IT IS REQUIRED TO BE NOTED THAT IT IS THE CONTENTIO N ON BEHALF OF THE REVENUE THAT AS SUCH THE COMPANY PAID THE INTEREST AT DIFFERENT RATES TO DIFFERENT PERSONS/COMPANIES AND THEREFORE, THE SAME WAS RIGHT LY DISALLOWED UNDER SECTION 40A(2)(B). HOWEVER, IT IS REQUIRED TO BE NOTED THAT EXCEPT AFORESAID THERE WAS NO BASIS FOR THE ASSESSING OFFICER TO COME TO THE CONC LUSION THAT AMOUNT OF INTEREST PAID AT THE RATE OF 12 PER CENT WOULD RELATE TO THE CONCERNED PARTIES WAS OTHERWISE EXCESSIVE AND/OR UNREASONABLE. IT IS NOT THE CASE ON BEHALF OF THE REVENUE THAT CONSIDERING THE MARKET RATE THE: AFORE SAID INTEREST PAID AT THE RATE OF 12 PERCENT CAN BE SAID TO BE EXCESSIVE AND/OR UN REASONABLE. UNDER THE CIRCUMSTANCES, SOLELY BECAUSE THE ASSESSES FOR WHAT EVER REASONS/CONSIDERATION PAID THE, INTEREST AT DIFFERENT RATES BY THAT ITSEL F CANNOT BE A GROUND TO COME TO THE CONCLUSION THAT PAYING OF ITA NO.3454/AHD/2016 ASSTT. YEAR 2012-13 INTEREST AT HIGHER RATE THAN PAID TO OTHER PARTY WAS EXCESSI VE AND/OR UNREASONABLE. UNDER THE CIRCUMSTANCE BOTH/THE COMMISSIONER (APPEA LS) AS WELL AS THE TRIBUNAL HAVE RIGHTLY DELETED THE: DISALLOWANCE SOF RS. 1.22 CRORES MADE BY THE ASSESSING OFFICER UNDER ISECTION 40A(2)(B). UNDER THE CIRCUMS TANCES, QUESTION IS ANSWERED AGAINST THE REVENUE. [PARA 4.0]' 11. IN SO FAR AS THE RATE OF INTEREST AT 18% CONSID ERED TO BE} EXCESSIVE, THE CO- ORDINATE BENCH IN THE CASE OF VIPUL Y. MEHTA (SUPRA ) HAS HELD THAT THE PAYMENT OF INTEREST @: 18% PER ANNUM TO. THE RELATIVES, ON UNS ECURED LOANS CANNOT BE SAID TO BE, EXCESSIVE OR UNREASONABLE. ITA NO 2741/ AHD/2017 & C.O. NO. 20 /AHD/2019 . A.Y. 2013-1 4 6 12. CONSIDERING THE FACTS IN TOTALITY, IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HEREINABOVE, WE SET ASIDE THE FINDINGS OF THE LD.CI T(A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED DISALLOWANCES. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF THE LD.CIT (A). HENCE THE GROUND OF APPEAL OF THE REVEN UE IS DISMISSED. 6. SINCE RELIEF HAS ALREADY BEEN GRANTED BY THE CO-ORD INATE BENCH IN ASSESSEES OWN CASE FOR IDENTICAL FACTS AND CIRCUMSTANCES OF T HE CASE. THUS, IN PARITY WITH THE ABOVE SAID ORDER, WE DISMISS THIS APPEAL OF THE REVENUE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. 8. NOW WE COME TO C.O. NO. 20/AHD/2019 WHEREIN ASSESSE E HAS SUPPORTED THE ORDER OF LD. CIT(A). SINCE WE HAVE ALREADY DISMISSE D THE APPEAL OF THE REVENUE AND C.O. IS SUPPORTIVE TO THE LD. CIT(A) ORDER AND SAME IS DISMISSED AS IN FRUCTUOUS. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED AND C.O. FILED BY THE ASSESSEE IS ALSO DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 28 - 06- 2019 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 28/06/2019 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT.