MAHAKOSHAL REFRAACTORIES P.LTD, V. ACIT 10(3), MUMBAI

ITA 2913/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4109 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V VISPUTEDR
• Assessee Lawyers: KANTILAL GUGALIA
• Keywords: Commercial expediency

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2913/MUM/2012 ASSESSMENT YEAR: 2009-10 M/S MAHAKOSHAL REFRACTORIES PRIVATE LTD. INDUSTRIAL AREA KATAY GHAT ROAD, KATNI (M.P.)-483501 / VS. ACIT-10(3), ROOM NO.451, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( ! /ASSESSEE) ( ' / REVENUE) PAN. NO . AAECM4903B ! / ASSESSEE BY SHRI KANTILAL GUGALIA ' / REVENUE BY SHRI K.V. VISPUTE-DR # '$ % ! & / DATE OF HEARING : 26/04/2016 % ! & / DATE OF ORDER: 26/04/2016 ITA NO.2913/MUM/2012 M/S MAHAKOSHAL REFRACTORIES PRIVATE LTD . 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 07/02/2012 OF THE FIRST APPELLATE AUTHORITY, MUMBAI . THE ONLY GROUND RAISED IN THIS APPEAL IS WITH RESPECT T O DISALLOWING INTEREST PAID AT THE RATE OF 18% TO THE DIRECTORS AND OTHER RELATIVES ON UNSECURED LOANS AND THEREBY ADDING RS.1,53,610/- TO THE RETURNED INCOME OF THE ASSESSE E. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, SHRI KANTILAL GUGALIA, CONTENDED THAT THE ASSESSEE HAS PAID INTEREST AT THE RATE OF 18% ON UNSECURED LOANS AND THE LD. ASSESSING OFFICER UNJUSTIFIABLY ALLOWED AT THE RATE OF 12%. IT WAS ALSO PLEADED THAT THE INTEREST AT THE RATE OF 1 8% WAS NOT ONLY PAID TO THE RELATIVES BUT ALSO TO THE OUTSIDE PARTIES LIKE M/S ABHISHEK INVESTMENTS, RATLAM AND THE RATE OF I NTEREST AT 18% WAS THE PREVAILING MARKET RATE, THUS, IT WAS NO T EXCESSIVE. PLEA WAS ALSO RAISED THAT BESIDES INTERE ST CHARGES, THERE ARE MANY OTHER CHARGES LIKE STAMP DUTY ON REN EWALS, PROCESSING FEES, ADMINISTRATIVE CHARGES TO SECURE L OAN FROM BANKS. IT WAS ALSO EXPLAINED THAT THE PERSONS FROM WHOM LOAN WERE OBTAINED ARE ALL INCOME TAX PAYEE. ON THE OTHE R HAND, THE LD. DR, SHRI K.V. VISPUTE, DEFENDED THE ADDITIO N ON THE GROUND THAT THE INTEREST WAS PAID TO THE DIRECTORS AND OTHER RELATIVES, WHICH IS EXCESSIVE, THEREFORE, THE ADDIT ION WAS RIGHTLY MADE. ITA NO.2913/MUM/2012 M/S MAHAKOSHAL REFRACTORIES PRIVATE LTD . 3 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF REFRACTORIES. IT WAS N OTED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE PAID INTERE ST ON SECURED AND UNSECURED LOANS AMOUNTING TO RS.76,52,399/- AND RS.5,98,826/- RESPECTIVELY. THE UNSECURED LOANS WER E MAINLY OBTAINED FROM DIRECTORS AND OTHER RELATIVES ON WHIC H THE INTEREST WAS PAID AT THE RATE OF 18% PER ANNUM. TH E LD. ASSESSING OFFICER WAS OF THE VIEW THAT THE PREVAILI NG MARKET RATE WAS 12%, THEREFORE, THE PAYMENT OF INTEREST AT 18% IS HIGHLY EXCESSIVE, THUS, HE PAID RS.1,53,610/- TO TH E PARTIES COVERED U/S 40A(2)(B) AND ADDITION WAS MADE TO THE RETURNED INCOME. 2.2. ON APPEAL, BEFORE THE COMMISSIONER OF INCOME TAX (APPEAL), THE FACTS WERE ANALYZED AND THE STAND TAK EN IN THE ASSESSMENT ORDER WAS AFFIRMED. THE ASSESSEE IS IN F URTHER APPEAL BEFORE THIS TRIBUNAL. 2.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, THERE IS NO DISPUTE TO THE FACT THAT UNSECURED LOANS WERE OBTAINED FROM THE DIRECTORS AN D OTHER RELATIVES AND INTEREST WAS PAID AT THE RATE OF 18% TO THEM. THE ADDITION WAS MADE BY THE LD. ASSESSING OFFICER AND CONFIRMED ITA NO.2913/MUM/2012 M/S MAHAKOSHAL REFRACTORIES PRIVATE LTD . 4 BY THE COMMISSIONER OF INCOME TAX (APPEAL) IS THAT THE BANK INTEREST RATE WAS 12%. THIS IS ALSO AN ADMITTED PO SITION THAT FOR SECURING INTEREST FROM THE BANKS, LOT OF FORMAL ITIES LIKE PAPER WORK, PROCESSING FEE, ADMINISTRATIVE CHARGES, TIME IS REQUIRED, WHEREAS, FOR UNSECURED LOANS FROM RELATIV ES AND FRIENDS, SUCH FORMALITIES ARE NOT NEEDED. IT IS AL SO NOTED THAT THE ASSESSEE PAID INTEREST AT THE RATE OF 18% FROM OUTSIDE PARTIES NAMELY M/S ABHISHEK INVESTMENT, RATLAM, THE REFORE, THE BASIS OF ADDITION THAT EXCESSIVE INTEREST WAS P AID TO THE RELATED PARTIES, SOLELY CANNOT BE THE BASIS FOR MAK ING THE DISALLOWANCE. SO FAR AS, THE OBSERVATION CONTAINED IN 2.3 OF THE IMPUGNED ORDER THAT OPTION WAS AVAILABLE TO OBTAIN THE LOAN FROM THE BANK IS CONCERNED, THE BUSINESS MAN IS WIS E ENOUGH TO TAKE A DECISION UNDER THE CIRCUMSTANCES AND NO B USINESS WILL PAY HIGHER RATE OF INTEREST UNLESS AND UNTIL T HERE ARE PRESSING CIRCUMSTANCES. SINCE, THE ASSESSEE HAS PAI D INTEREST AT THE RATE OF 18% TO THE OUTSIDE PARTIES ALSO, THE REFORE, THERE IS NO JUSTIFICATION TO DISALLOW THE SAME. GENERALLY , THE TRANSACTIONS EVEN FROM THE RELATIVES AND OTHER ASSOCIATES/CONCERN PERSON CANNOT BE DISCARDED AND T HE PRICE PAID THEREFORE CANNOT BE DISCARDED UNLESS IT IS EST ABLISHED OTHERWISE BY THE DEPARTMENT THAT THE TRANSACTION WA S SHAM. THE REASONABLENESS OF THE INTEREST IS TO BE DETERMI NED AFTER TAKING INTO ACCOUNT, THE LEGITIMATE NEEDS OF THE BU SINESS OF THE ASSESSEE. SO FAR AS, THE LEGITIMATE BUSINESS NEEDS ARE CONCERNED, THESE ARE TO BE JUST FROM THE COMMERCIAL EXPEDIENCY OR BUSINESS NEEDS OF THE BUSINESS MAN AN D THE ITA NO.2913/MUM/2012 M/S MAHAKOSHAL REFRACTORIES PRIVATE LTD . 5 ASSESSING OFFICER IS NOT EXPECTED TO SIT ON THE CHA IR OF THE BUSINESS MAN. OUR VIEW FIND SUPPORTS FROM THE DECIS ION FROM HONBLE GUJARAT HIGH COURT IN VOLTMAP TRANSFORMERS PVT. LTD. VS CIT (1981) 129 ITR 105, 113(GUJ.). THE RATIO LAI D DOWN IN ANAND G. SHAH VS CIT (1990) 181 ITR 171, WHEREIN TH E ASSESSEE FIRM PAID INTEREST AT THE RATE OF 24%, PER ANNUM TO THE SON AND WIFE OF ITS TWO PARTNERS. THE TRIBUNAL FOUND THAT INTEREST AT THE RATE OF 18% AS REASONABLE. THIS CAS E SUPPORTS THE CASE OF THE ASSESSEE. CONSIDERING THE TOTALITY OF FACTS AND THE JUDICIAL PRONOUNCEMENTS, THE APPEAL OF THE ASSE SSEE IS ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 26/04/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; ' DATED : 26/04/2016 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. )*+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / # 0! ( )* ) / THE CIT, MUMBAI. 4. / / # 0! / CIT(A)- , MUMBAI ITA NO.2913/MUM/2012 M/S MAHAKOSHAL REFRACTORIES PRIVATE LTD . 6 5. 2'3 -! , / )*& ) 4 , # $ / DR, ITAT, MUMBAI 6. 5 6$ / GUARD FILE. / BY ORDER, .2*! -! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI