The ACIT,(OSD), Circle-10, Ahmedabad V. SJ & SP Family Trust, Ahmedabad

ITA 2802/AHD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9861 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-10-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 29-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K D RATNOO
• Assessee Lawyers: S N SOPARKAR
• Keywords: Maximum Marginal Rate
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NOS. 2802 & 2803/AHD/2013 (ASSESSMENT YEARS: 2004-05 & 2005-06) ASST. COMMISSIONER OF INCOME-TAX (OSD), CIRCLE 10, AHMEDABAD APPELLANT VS. SJ & SP FAMILY TRUST, 1 ST FLOOR, POPULAR HOUSE, ASHRAM ROAD, AHMEDABAD RESPONDENT PAN: AAATS5877R / BY REVENUE : SHRI K. D. RATNOO, D.R. /BY ASSESSEE : S. N. SOPARKAR & URVASHI SHODHAN, A.R. /DATE OF HEARING : 20.10.2016 /DATE OF PRONOUNCEMENT : 22.11.2016 ORDER PER S. S. GODARA, JUDICIAL MEMBER THESE TWO REVENUES APPEALS FOR ASSESSMENT YEARS 20 04-05 AND 2005- 06 ARISE AGAINST CIT(A)-XVI, AHMEDABADS ORDERS; BO TH DATED 16.06.2013, PASSED IN APPEAL NOS. CIT(A)-XVI/ ACIT/CIR.11/574/1 1-12 & CIT(A)- XVI/ACIT/CIR.11/575/11-12; RESPECTIVELY, IN PROCEED INGS U/S.143(3) R.W.S. 254 OF THE INCOME TAX ACT,1961; IN SHORT THE ACT. ITA NOS. 2802 & 2803/AHD/2013 (AC IT VS. SJ & SP FA MILY TRUST) A.YS. 2004-05 & 2005-06 - 2 - 2. WE COME TO REVENUES PLEADINGS IN THE INSTANT AP PEALS. ITS FIRST TWO IDENTICAL GROUNDS CHALLENGE THE LOWER APPELLATE ORD ERS IN DELETING SECTION 40A(2)(B) INTEREST DISALLOWANCES/ ADDITIONS OF RS.1 ,11,45,599/- EACH, FURTHER ANNULLING THE IMPUGNED CONSEQUENTIAL ASSESSMENTS AS TIME BARRED AND IN REVERSING THE ABOVE DISALLOWANCE QUA SECTION 80IA D EDUCTION BY EXCLUDING THE INTEREST INCOME WHILST COMPUTING THE SAME; RESP ECTIVELY. BOTH PARTIES AT THE OUTSET INFORM US THAT THEY ARE MAKING THEIR SUB MISSIONS ONLY QUA SECTION 40A(2)(B) INTEREST ISSUE AND THE SECOND ONE PERTAIN ING TO LEGALITY OF THE IMPUGNED CONSEQUENTIAL ASSESSMENTS. THEY FURTHER S TATE THAT RELEVANT FACTS AND CIRCUMSTANCES IN BOTH ASSESSMENT YEARS ARE IDEN TICAL. WE THUS TREAT REVENUES APPEAL ITA NO.2802/ AHD/2013 FOR A.Y. 200 4-05 AS THE LEAD CASE. 3. THIS APPEARS TO BE SECOND ROUND OF LITIGATION BE FORE THE TRIBUNAL. THE ASSESSEE IS A SPECIFIC TRUST ENGAGED IN BIDI MANUFA CTURING SINCE ASSESSMENT YEAR 1988-89. IT FILED RETURN ON 26.10.2004 STATIN G INCOME OF RS.3,64,62,407/-. THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 28.02.2006 MAKING SECTION 40A(2)(B) DISALLOWANCE/AD DITION OF RS.1,25,38,799/- AFTER HOLDING THAT ASSESSEES INTE REST EXPENDITURE INCURRED @ 22% IN CASE OF SPECIFIED PARTIES WAS AN EXCESSIVE O NE TO THE EXTENT OF 9%. THE CIT(A) AFFIRMED THE SAME IN FIRST ROUND OF PROC EEDINGS VIDE ORDER DATED 14.08.2008. THE ASSESSEE FILED ITA NO.3404/AHD/200 8 BEFORE THIS TRIBUNAL. A CO-ORDINATE BENCH IN ITS ORDER DATED 07.08.2009 R EMITTED THE ISSUE BACK TO THE ASSESSING OFFICER FOR DECISION AFRESH AFTER TAK ING INTO ACCOUNT ALL PREVAILING CIRCUMSTANCES IN RELATION TO THE IMPUGNE D LOANS AVAILED FROM SPECIFIED PARTIES AS WELL AS OTHER CREDITORS. 4. THE ASSESSING OFFICER FRAMED IMPUGNED CONSEQUENT IAL ASSESSMENT ON 23.12.2011. HE OBSERVED FIRST OF ALL THAT THE ASSE SSEE DID NOT PRODUCE ALL RELEVANT DETAILS EXCEPT THOSE ALREADY ON RECORD IN FIRST ROUND OF ASSESSMENT. ITA NOS. 2802 & 2803/AHD/2013 (AC IT VS. SJ & SP FA MILY TRUST) A.YS. 2004-05 & 2005-06 - 3 - HE THEREAFTER OPINED THAT THE SAID DETAILS REVEALED THAT THE LENDING RATE IN QUESTION IN THE IMPUGNED ASSESSMENT YEAR RANGED BET WEEN 11 TO 12%. THE ASSESSEE HAD ITSELF PAID INTEREST @ 13 TO 14% TO NO N SPECIFIED PARTIES. THE ASSESSING OFFICER BENCHMARKED THE SAME TO AT MARKET RATE. HIS VIEW WAS THAT ASSESSEES TAXABLE PROFITS WERE @8.66% ONLY WH EREAS THE IMPUGNED INTEREST AMOUNT WAS @ 22%. THE ASSESSING OFFICER T HEREAFTER PREPARED A COMPARATIVE CHART DEMONSTRATING THAT SIMILAR INTERE ST AMOUNT PAID @ 22% STOOD ACCEPTED FROM ASSESSMENT YEAR 1989-90 TO ASSE SSMENT YEAR 2003-04 AND @ 18% TO 14% IN SUBSEQUENT ASSESSMENT YEARS 200 6-07 TO 2008-09. HE THUS HELD INTEREST RATE @ 14% TO BE REASONABLE AND AT MARKET RATE THEREBY DISALLOWING/ADDING THE REMAINING ONE @8% COMING TO RS.1,11,45,599/- IN QUESTION TO BE EXCESSIVE U/S.40A(2)(B) OF THE ACT. 5. THE ASSESSEE FILED YET ANOTHER APPEAL. IT RAISE D TWO SPECIFIC CONTENTIONS. FIRST ONE PLEADED THAT THE IMPUGNED C ONSEQUENTIAL ASSESSMENT WAS VARIABLE TIME BARRED AS PER SECTION 153(2A) OF THE ACT. LATTER ONE ASSAILED CORRECTNESS OF THE IMPUGNED INTEREST DISAL LOWANCE/ADDITION ON MERITS. THE CIT(A) SOUGHT A REMAND REPORT. THE ASSESSING O FFICER SUBMITTED THE SAME ON 16.03.2013 STATING THAT THE CIT-V, AHMEDABA D HAD RECEIVED THIS TRIBUNALS REMAND ORDER IN SEPTEMBER 2009. THE FIL E THEREAFTER CAME TO HIM ON 19.10.2011. THE CIT(A) ACCEPTS BOTH OF ASSESSEE S CONTENTIONS HEREINABOVE AS UNDER: 3.6 ON ANALYSES OF THE FACTS OF THE CASE, IT IS CL EAR THAT THE ORDER OF HON'BLE TRIBUNAL WAS RECEIVED IN THE OFFICE OF CIT-V, AHMED ABAD IN SEPTEMBER, 2009. THUS WITHIN THE MEANINGS OF SECTION 153 ABOVE, AN O RDER FRAMING AFRESH ASSESSMENT ORDER WAS TO BE MANDATORILY PASSED ON OR BEFORE 31-03-2011. FACTS AVAILABLE ON RECORDS INDICATE THAT ORDER U/S. 143(3 ) RWS 254 WAS PASSED BY THE A O ON 23-12-2011. THE ARGUMENT OF THE A O THAT THE ORD ER: PASSED BY HIM IS NOT A DEFACTO DE-NOVO ORDER BUT AN ORDER JUST TO COMPLY T O SPECIFIC DIRECTIONS OF THE HON'BLE TRIBUNAL AND HENCE IT IS NOT A TIME BARRED ORDER ARE NOT CORRECT SINCE THE DIRECTIONS OF THE TRIBUNAL MENTIONED SUPRA CLEARLY INDICATE THAT THE HON'BLE TRIBUNAL HAD IN UNEQUIVIVOCAL TERMS DIRECTED PASSIN G OF AFRESH ASSESSMENT ORDER. THUS SEEN THE ORDER U/S. 143(3) / 254 SUFFERS FROM THE VICE OF AN ORDER WHICH WAS ITA NOS. 2802 & 2803/AHD/2013 (AC IT VS. SJ & SP FA MILY TRUST) A.YS. 2004-05 & 2005-06 - 4 - PASSED BEYOND THE MANDATORY TIME LIMIT PRESCRIBED U /S. 153 AND HENCE DESERVES TO BE ANNULLED. CONSEQUENTLY, THE ORDER U/S. 143(3) / 254 PASSED BY THE A O MAKING AN ADDITION OF RS. 1,11,45,599/- ON ACCOUNT OF EXCE SS INTEREST PAID TO PERSONS U/S. 40A(2)(B) IS HEREBY ANNULLED AND THE GROUND OF APPE AL NO.2 & 3 RAISED ARE ALLOWED. 3.7 WITHOUT PREJUDICE TO THE ABOVE DECISION OF ANNU LLING THE ASSESSMENT ORDER U/S. 143(3) / 254, IT IS SEEN THAT EVEN ON MERITS, THE A DDITION MADE BY THE ID A 0 DOES NOT SATISFIES ANY LOGICAL DEDUCTION. AS AGAINST THE APPELLANTS CLAIM OF INTEREST AT THE RATE OF 22% ON LOANS TO PERSONS SPECIFIED U/S. 40A(2)(B), THE ID A O HAS RESTRICTED THE SAID TO 14% ON THE PLEA THAT 22% WAS NOT THE MARKET RATE AND THAT THE APPELLANT HAS PURPOSEFULLY PAID HIGHER RATE OF INTEREST: IT IS PERTINENT TO POINT OUT THAT THE ID A O HAS NOT BROUGHT UPON RECORD ANY SPECIFIC MATERIAL TO SUBSTANTIATE HIS FINDING. FURTHER, I FIND FORCE IN THE ARGUMENT OF THE APPELLANT THAT THE PERSONS TO WHOM INTEREST HAS BEEN PAID ARE IN H IGHEST RATES OF TAXATION AND THUS EFFECTIVELY THERE IS NO LOSS OF REVENUE. FACTS OF THE CASE ALSO INDICATE THAT THE RATE OF 22% INTEREST PAYMENT WAS ALLOWED TO THE APP ELLANT IN EARLIER FROM A Y 92- 93 TO A Y 2003-04. THE FACTS OF THE CASE OF CURRENT YEARS BEING IDENTICAL TO THE EARLIER YEARS THEREFORE WOULD NOT WARRANT ANY DIFFE RENT TREATMENT. WITHOUT PREJUDICE TO THE ABOVE EXAMINATION OF JUDICIAL CITA TIONS RELIED UPON BY THE APPELLANT INDICATE THAT PAYMENT OF INTEREST RATES O F 22% PERTAINING TO PERSONS COVERED U/S. 40A(2)(B) STANDS ALLOWED. IN VIEW OF T HE DISCUSSIONS MADE ABOVE, IT IS HELD THAT EVEN ON MERITS, NO ADDITION WAS REQUIRED TO BE MADE BY THE LD. A O. ACCORDINGLY, THE ADDITION MADE BY THE LD A O IS THEREFORE DELETE D AND THE GROUND OF APPEAL NO. 1 IS ALSO ALLOWED. 6. HEARD BOTH SIDES REITERATING THEIR RESPECTIVE ST ANDS. CASE FILE PERUSED. WE FIRST COME TO LEGAL ISSUE AS TO WHETHER THE IMPU GNED CONSEQUENTIAL ASSESSMENT IS TIME BARRED OR NOT. THERE IS NOT DIS PUTE THAT THIS TRIBUNAL PASSED ITS REMAND ORDER ON 07.08.2009. THE CIT AS WELL AS ASSESSING OFFICER CONCERNED RECEIVED THE SAME IN SEPTEMBER 2009 AND 1 9.10.2011; RESPECTIVELY. WE NOTICE AT THIS STAGE THAT SECTION 153(2A)AS IT THIS WAS POSTULATES FRAMING OF ASSESSMENTS IN PURSUANCE TO T RIBUNALS DIRECTIONS ISSUED U/S.254 OF THE ACT; TO BE MADE AT ANY TIME BEFORE T HE EXPIRY OF ONE YEAR FROM THE END OF THE FINANCIAL YEAR FROM THE RECEIPT OF T HE REMAND ORDER IN QUESTION. THIS IS FOLLOWED BY SECOND PROVISO THEREOF; AS IT T HEN WAS, ENVISAGING THAT WHERE A COMMISSIONER OF INCOME TAX RECEIVES TRIBUNA LS ORDER U/S.254 OF THE ACT BEFORE 01.04.2011, THE PROVISIONS OF THIS SECTI ON SHALL HAVE EFFECT AS IF FOR THE WORDS ONE YEAR, THE WORDS NINE MONTHS HAVE BEEN SUBSTITUTED. WE OBSERVE IN THIS BACKDROP THAT THE ASSESSING OFFICER OUGHT TO HAVE COMPLETED ITA NOS. 2802 & 2803/AHD/2013 (AC IT VS. SJ & SP FA MILY TRUST) A.YS. 2004-05 & 2005-06 - 5 - THE IMPUGNED ASSESSMENT WITHIN A PERIOD OF NINE MON THS FROM THE END OF THE FINANCIAL YEAR OF TRIBUNALS REMAND ORDER 2009-10 U PTO 31.12.2010 WHEREAS THE ASSESSING OFFICER HAS PASSED CONSEQUENTIAL ORDE R ON 23.12.2011. WE THUS FIND NO REASON TO INTERFERE IN THE CIT(A)S OR DER ANNULLING THE IMPUGNED CONSEQUENTIAL ASSESSMENT AS TIME BARRED. THE REVEN UE FAILS IN ITS LEGAL GROUND. 7. THIS LEAVES US WITH THE LATTER ISSUE ON MERITS A S TO WHETHER THE ASSESSEES INTEREST PAID @ 22% COULD BE HELD TO BE EXCESSIVE U/S.40A(2)(B) OF THE ACT. THERE IS NO DISPUTE THAT NEITHER OF TH E LOWER AUTHORITY HAS ARRIVED AT ANY MARKET RATE OF INTEREST INDEPENDENTLY RIGHT FROM FIRST ROUND OF ASSESSMENT. THE ASSESSING OFFICER IN CONSEQUENTIAL ORDER MERELY BENCHMARKS ASSESSEES INTEREST RATE IN CASE OF NON SPECIFIED PARTIES. HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. SARJAN REALTIES LTD. (2014) 227 TAXMAN 225 (GUJARAT) HOLDS THAT THE IMPUGNED DISALL OWANCE DOES NOT ARISE MERELY BECAUSE AN ASSESSEE HAS PAID INTEREST AT LOW ER RATE TO OTHER PAYEES. WE REITERATE THAT THE ASSESSING OFFICER HEAVILY REL IES ON ASSESSEES BANK BORROWINGS @ 14%. SHIR SOPARKAR AT THIS STAGE TAKE S US TO PAGE 32 OF THE PAPER BOOK CONTAINING HONBLE JURISDICTIONAL HIGH C OURTS DECISION IN TAX APPEAL NO.2488/2010 DECIDED ON 18.01.2012 CIT VS. P RABHUDAS KISHOREDAS (ASSESSEES SISTER CONCERN) PERTAINING TO THE VERY ASSESSMENT YEAR HOLDING IDENTICAL INTEREST RATE @22% TO BE REASONABLE. HE THEREAFTER QUOTES HONBLE JURISDICTIONAL HIGH COURTS YET ANOTHER DECISION PCIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. (2015) 233 TAXMAN 532 (GUJA RAT) CONCLUDING THAT THE IMPUGNED DISALLOWANCE DOES NOT COME INTO PLAY I F BOTH PAYER AS WELL PAYEE ARE ASSESSED AT MAXIMUM MARGINAL RATE AS PER CBDTS CIRCULAR NO.6 DATED 06.07.1968. THE REVENUE FAILS TO REBUT ALL T HESE LEGAL DEVELOPMENTS. WE THUS FIND NO REASON TO INTERFERE IN THE LOWER AP PELLATE ORDER UNDER CHALLENGE. THIS REVENUES APPEAL ITA NO.2802/AHD/2 013 IS DECLINED. ITA NOS. 2802 & 2803/AHD/2013 (AC IT VS. SJ & SP FA MILY TRUST) A.YS. 2004-05 & 2005-06 - 6 - 8. SAME ORDER TO FOLLOW IN REVENUES LATTER APPEAL ITA NO.2803/AHD.2013 FOR ASSESSMENT YEAR 2005-06 AD WE HAVE ALREADY INDICATED THAT THERE IS NO DISTINCTION INVOLVED IN THE SAME. 9. THESE TWO REVENUES APPEALS ARE DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF NOVEMBER, 2016.] SD/- SD/- (N. K. BILLAIYA) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 22/11/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0