ITO, Meerut V. Sh. Ajay Kumar Gupta, Meerut

ITA 2928/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53007 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SRUJINI MOHANTY
• Assessee Lawyers: V RAJ KUMARAR
• Keywords: Fair market value
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENCH BEFORE SHRI I.P. BANSAL, JM & SHRI A.N. PAHUJA, AM ITA NO.2928/D/2010 ASSESSMENT YEAR:2006-07 INCOME TAX OFFICER, WARD 1(1), MEERUT V/S . AJAY KUMAR GUPTA AMBER HANDLOOM IND. KHANDAK BAZAR, MEERUT [PAN:ACJPG 4875 A] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI K. SAMPATH & V. RAJ KUMAR,AR REVENUE BY MRS. SRUJINI MOHANTY, DR DATE OF HEARING 13-10-2011 DATE OF PRONOUNCEMENT 21-10-2011 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 11.6.2010 BY THE REVENUE AGAI NST AN ORDER DATED 16 TH MARCH, 2010 OF THE LEARNED CIT(A)- MEERUT, RAISES THE FOLLOWING GROUNDS:- 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF ` `56,50,000/- MADE BY ASSESSING OFFICER U/S 41(2) OF THE INCOME-TAX ACT, 1961, ON ACCOUNT O F UNCONFIRMED CREDITORS IGNORING THE SPECIFIC FINDINGS GIVEN BY THE ASSESSI NG OFFICER THAT THE CREDITORS REMAINED UNCONFIRMED AND UNEXPLAINED, THEREFORE, GE NUINENESS OF TRANSACTIONS REMAINED UNPROVED? 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF ` ` 2,65,429/- MADE BY ASSESSING OFFICER U/S 40A(2)(B) OF THE INCOME-TAX ACT, 1961, ON ACCOUNT O F EXCESSIVE INTEREST GIVEN BY THE ASSESSEE @15% INSTEAD OF 12% ON UNSECURED LOANS TO SPECIFIC PERSONS INSPITE OF ASSESSING OFFICERS CLEAR FINDING THAT M AXIMUM INTEREST RATE ALLOWABLE DURING THE YEAR COULD BE 12% ONLY? 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.2928/DEL./2010 2 2. ADVERTING NOW TO GROUND NOS.1 & 2 IN THE APPEA L, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME O F ` 1,39,019/- FILED ON 31 ST OCTOBER, 2006 BY THE ASSESSEE, AFTER BEING PROCESSE D ON 14 TH JUNE, 2007 U/S 143 (1) OF THE INCOME-TAX ACT, 1961 (HEREINABOVE RE FERRED TO AS THE ACT) WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ISSUED ON 19 TH OCTOBER, 2007. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) ASKED THE ASSESSE E TO FURNISH LIST OF WEAVERS ACCOUNT WITH THE AMOUNT OF PURCHASE AND PRODUCE BO OKS OF ACCOUNTS ON 20.10.2008.ON THE DATE OF HEARING, THE ASSESSEE SUB MITTED A LIST OF WEAVERS AND THE AO ASKED TO SUBMIT COPIES OF SLIPS. AFTER HAVIN G THESE SLIPS, THE AO ASKED THE ASSESSEE TO PRODUCE SHRI NARESH CHAND, SHRI RAS HID AND SHRI FURKAN. THE ASSESSEE ,ACCORDINGLY, PRODUCED THESE PERSONS ON 6. 11.2008,WHEN THE AO ASKED TO PRODUCE BOOKS OF ACCOUNTS OF THE REMAINING PERSONS.SINCE THE ASSESSEE DID NOT COMPLY WITH THE DIRECTIONS OF THE AO, THE AO ISSUED A SHOWCAUSE NOTICE U/S 144 OF THE ACT ON 19.12.2008.N ONE RESPONDED TO THE SAID NOTICE. SINCE THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF THE TRANSACTIONS WITH BUNKARS, THE AO ADDED AN AMOUNT O F ` 56,50,000/- U/S 41(1) OF THE ACT. BESIDES THE AO DISALLOWED INTEREST OF ` `2,65,429/- U/S 40A(2)(B) OF THE ACT ON THE GROUND THAT PAYMENT OF INTEREST @15% PER ANNUM ON UNSECURED LOANS WAS EXCESSIVE AND MAXIMUM INTEREST ALLOWABLE DURIN G THE YEAR WAS @12% PA. 3. ON APPEAL, THE LEARNED CIT(A) DELETED BOTH THE AFORESAID ADDITIONS, AFTER HAVING A REMAND REPORT FROM THE AO, IN THE FO LLOWING TERMS:- 6. 6.4 DECISION & REASONS THEREFORE: I HAVE CONSIDERED THE ASSESSING OFFICERS ORDER, HI S REMAND REPORT AND THE ARS SUBMISSIONS. THE ONLY CONCLUSION THAT CAN BE ARRIVED AT IS THAT THE ASSESSING OFFICER MADE THE ADDITION HASTILY AT THE ASSESSMENT STAGE AND THE APPELLANT SATISFIED ALL HIS QUERIES AT THE REMAND S TAGE. THE ADDITION MADE IS NOT SUSTAINABLE FOR THE FOLLOWING REASONS: I) THAT ASSESSING OFFICER EXAMINED THE BOOKS OF ACC OUNTS, WHICH WERE PRODUCED DURING THE ASSESSMENT PROCEEDINGS. HE DID NOT FIND ANY ITA NO.2928/DEL./2010 3 DEFECTS THEREIN. THE PURCHASES MADE FROM WEAVERS A ND THE AMOUNTS DUE TO THEM AND OTHER SUBSIDIARY RECORDS WERE MAINT AINED BY THE ASSESSEE DURING THE COURSE OF BUSINESS. THERE WAS NO CHANGE IN THE METHOD OF ACCOUNTING WHICH WAS ACCEPTED IN EARLIER YEARS. II) PURCHASES FROM WEAVERS WHO ARE MOSTLY UNEDUCATE D AND RESIDE IN REMOTE AREAS IS BASIC TO THE BUSINESS OF THE ASSESS EE. THREE WEAVERS WERE PRODUCED ALSO BEFORE THE ASSESSING OFFICER DUR ING THE ASSESSMENT PROCEEDINGS. NON-PRODUCTION OF OTHER WE AVERS COULD BE NO REASON FOR MAKING THE ADDITION. III) IN ANY CASE, 25 OUT OF 26 CREDITORS WERE PRODU CED DURING THE REMAND PROCEEDINGS. THEY DEPOSED BEFORE THE ASSESSING OFF ICER AND CONFIRMED THE TRANSACTIONS WITH THE ASSESSEE. IN V IEW OF THESE FACTS, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE W EAVERS DID NOT HAVE BANK ACCOUNTS OR THAT THEY WERE HAND TO MOUTH HAS N O RELEVANCE TO THE SUPPLY OF GOODS BY THE WEAVERS ON CREDIT BASIS AND PAYMENTS RECEIVED FROM THE ASSESSEE IN THE MANNER DESCRIBED BY THEM. THE ADDITION MADE IS ACCORDINGLY DELETED. 3.1 AS REGARDS DISALLOWANCE OF ` 2,65,429/-, THE LD. CIT(A) CONCLUDED AS UNDER: 7.3 THE OBSERVATIONS OF THE ASSESSING OFFICER IN HIS REMAND REPORT AND THE ARS ARGUMENTS HAVE BEEN GIVEN BY THE AR, WHICH ARE EXTRACTED BELOW. `2,65,429/- DISALLOWANCE U/S 40A(2)(B) OF THE INC OME-TAX ACT AS ALLEGED EXCESS CLAIM IN INTEREST ACCOUNT. QUERY MADE BY THE LEARNED ASSESSING OFFICER DURING THE COURSE OF REMAND PROCEEDINGS VIDE HIS LETTER DATED 26.10.2009 : PLEASE EXPLAIN HOW THE MONEY (UNSECURED LOAN) HAS BEEN UTILIZED FOR THE BUSINESS AND /JUSTIFY THE INTEREST PAID AT THE RATE OF 15%. SUBMISSIONS BEFORE /THE LEARNED A.O. DURING REMAND PROCEEDINGS: REGARDING THIS QUERY, IT WAS SUBMITTED THAT THE ENT IRE BORROWINGS WERE OLD AND SINCE THEN INVESTED AND UTILIZED FOR B USINESS NEEDS AS WOULD BE EVIDENT FROM THE BALANCE SHEET OF THE ASSESSEE. OBSERVATIONS OF THE LEARNED A.O. VIDE HIS REMAND RE PORT DATED 08.01.2009: ITA NO.2928/DEL./2010 4 AS REGARDS THE UNSECURED LOANS AND AMOUNT OF INTE REST PAID @15% HOWEVER ASSESSEE EXPLAINED THAT IT USED THE UN SECURED LOANS IN THE BUSINESS AS HE HAD TO MAKE PURCHASES FROM TIME TO TIME BUT HIS CONTENTION FOR PAYMENT OF INTEREST @15% IS NOT JUST IFIED AND, THEREFORE, DISALLOWANCE DESERVES TO BE UPHELD. SINCE THE INTE REST RATE DURING THE FINANCIAL YEAR 2005-06 PREVAILED @12% ONLY. APPELLANTS SUBMISSIONS BEFORE LEARNED CIT(A): I) AS REGARDS CLAIM OF INTEREST @15% ON UNSECURED L OANS, IT MAY BE SUBMITTED THAT THE LEARNED A.O. IN HIS REMAND RE PORT HAS ONLY OBSERVED THAT RATE OF INTEREST AT 15% WAS NOT JUSTI FIED. HE ALSO OBSERVED THAT THE RATE OF INTEREST DURING THE FINAN CIAL YEAR 2005- 06 WAS 12% ONLY. IN THIS CONTEXT, IT MAY VERY HUMB LY BE SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS NO T GIVEN ANY REASON OR MATERIAL FOR HOLDING THE INTEREST RATE AT 15% AS UNJUSTIFIABLE. HIS VIEW THAT THE RATE OF INTEREST DURING THE FINANCIAL YEAR 2005-06 WAS 12% ONLY IS NOT SUPPORTE D BY ANY MATERIAL OR EVIDENCE. IN FACT THE RATE OF INTEREST IN RESPECT OF UNSECURED LOANS @ RATE OF 15% MAY BE RATHER ON THE LOWER SIDE. II) IT IS FURTHER SUBMITTED THAT ON THE ISSUE OF IN TEREST RATE, APPELLANTS DETAILED SUBMISSIONS VIDE PARAS 2(A) TO (I) OF PAGE 5 & 6 OF HIS WRITTEN SUBMISSIONS VIDE PAPER BOOK DATE D 3.8.2009 MAY ALSO KINDLY BE CONSIDERED. IN VIEW OF ABOVE SUBMISSIONS THE ENTIRE DISALLOWANC E RS.`2,65,429/- DESERVES TO BE DELETED COMPLETELY. 7.4: DECISION & REASONS THEREFORE: I HAVE CONSIDERED THE ASSESSING OFFICERS ORDER AN D THE ARS SUBMISSIONS CAREFULLY. FACTS BROUGHT OUT BY THE AR CAN LEAD TO THE ONLY CONCLUSION THAT THE INTEREST @ 15% WAS NOT JUSTIFIABLE. THE ADDITION I S DELETED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A).THE LEARNED DR SUPPO RTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE RELI ED UPON THE FINDINGS OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER. ITA NO.2928/DEL./2010 5 5, WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS REGARDS ADDITION OF ` .56,50,000/-, INDISPUTABLY, THE ASSESSEE PRODUCED ONLY THREE CREDITORS (BUNKERS) SHRI NARESH CHAND,SH RI RASHID AND SHRI FURKAN BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS. THE A O ADDED THE AMOUNT OF ` .56,50,000/- ON THE GROUND THAT THE ASSESSEE DID NO T ESTABLISH THE GENUINENESS OF TRANSACTIONS WITH WEAVERS. HOWEVER, IN TERMS OF DIRECTIONS OF THE LEARNED CIT(A) DURING THE REMAND PROCEEDINGS, OUT OF 26 CRE DITORS, 25 WERE PRODUCED AND THEY CONFIRMED THE TRANSACTIONS. MOST OF THE P ERSONS ADMITTED THAT GOODS WERE SUPPLIED ON CREDIT AND THEY RECEIVED THE PAYM ENT TOWARDS THEIR SALES IN A PERIOD VARYING BETWEEN ONE TO FOUR MONTHS. AS SOO N AS THE PAYMENT WAS COMPLETE ,THE PAYMENT SLIPS WERE TORN. IN THESE CIRCUMSTANCES, WHEN OUT OF 26 CREDITORS, 25 CONFIRMED THE TRANSACTIONS, THE LEARN ED CIT(A) DELETED THE ADDITION, THERE BEING NO OTHER DEFECTS IN THE BOOKS OF ACCOUN T. THE REVENUE DID NOT PLACE ANY MATERIAL BEFORE US, CONTRAVENING THE AFORESAID FINDINGS OF FACTS RECORDED BY LEARNED CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERE NT VIEW IN THE MATTER. IN VIEW OF THE FOREGOING AND IN THE ABSENCE OF ANY BASIS, WE A RE NOT INCLINED TO INTERFERE .THEREFORE, GROUND NO.1 IN THE APPEAL IS DISMISSED. 6.. AS REGARDS DISALLOWANCE OF EXCESSIVE INTEREST U/S 40A(2)(A) OF THE ACT, WE FIND THAT THE AO DID NOT BRING ANY MATERIA L ON RECORD FOR HOLDING THAT THE PAYMENT OF INTEREST @15% PER ANNUM TO UNSECURED CRE DITORS WAS EXCESSIVE. BEFORE THE LD. CIT(A), THE ASSESSEE PLEADED THAT AL L THE CREDITORS WERE OLD AND INTEREST IN THE PRECEDING YEAR HAS BEEN ALLOWED BY THE AO HIMSELF. BEFORE PROCEEDING FURTHER, WE MAY REFER TO THE PROVISION S OF SECTION 40A(2) (A) OF THE ACT, THE RELEVANT PORTION OF WHICH READS AS FOLLOWS '40A(2)(A). WHERE THE ASSESSEE INCURS ANY EXPENDITU RE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REF ERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THEASSESSING OFFICER IS OF THE OPI NION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEF IT DERIVED BY OR ACCRUING, TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION.' ITA NO.2928/DEL./2010 6 A MERE GLANCE AT THE AFORESAID PROVISION REVEALS T HAT THE EXPENDITURE MENTIONED THEREIN IS IN RELATION TO ANY PERSON REFE RRED TO IN CLAUSE (B) OF THE SUB- SECTION AND THE EXPENDITURE HAS TO BE CONSIDERED IN RELATION TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF T HE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE THEREFROM. H ONBLE GUJRAT HIGH COURT RECENTLY OBSERVED IN CORONATION FLOUR MILLS VS. ACI T,188 TAXMAN 257 THAT IN RELATION TO THE DISALLOWANCE UNDER THE PROVISIONS O F SECTION 40A(2) OF THE ACT, A PLAIN READING OF THE PROVISION REVEALS THAT WHERE A N ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN MADE TO ANY PERSON REFERRED TO IN CLAUSE ( B ) OF SECTION 40A(2) OF THE ACT AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPEN DITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO ( A ) FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR ( B ) THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE; OR ( C ) THE BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACI LITIES, THEN THE ASSESSING OFFICER SHALL NOT ALLOW AS A DEDUCTION SO MUCH OF T HE EXPENDITURE AS IS SO CONSIDERED BY THE ASSESSING OFFICER TO BE EXCESSIVE OR UNREASONABLE. THEREFORE, IT BECOMES APPARENT THAT THE ASSESSING OFFICER IS R EQUIRED TO RECORD A FINDING AS TO WHETHER THE EXPENDITURE IS EXCESSIVE OR UNREASON ABLE IN RELATION TO ANY ONE OF THE THREE REQUIREMENTS PRESCRIBED, WHICH ARE INDEPE NDENT AND ALTERNATIVE TO EACH OTHER. ALL THE THREE REQUIREMENTS NEED NOT EXI ST SIMULTANEOUSLY. IN A GIVEN CASE, IF ANY ONE CONDITION IS SHOWN TO BE SATISFIED THE PROVISION CAN BE INVOKED AND APPLIED, IF THE FACTS SO WARRANT. THUS, ONLY SO MUCH OF THE EXPENSES, IF PAID TO A PERSON REFERRED TO IN CLAUSE (B), ARE ALLOWABL E WHICH ARE FOUND TO BE NOT EXCESSIVE AND UNREASONABLE AND THE EXCESSIVE OR UNR EASONABLE PORTION HAS TO BE DISALLOWED. IT IS WELL SETTLED THAT THE PROVI SIONS OF SECTION. 40A(2)(A) OF THE ACT CANNOT HAVE ANY APPLICATION UNLESS IT IS FIRST CONCLUDED THAT THE EXPENDITURE WAS EXCESSIVE OR UNREASONABLE, AS HELD IN THE CASE OF UPPER INDIA STEEL MANUFACTURING AND ENGINEERING CO. PRIVATE LIMITED, 117 ITR 569(SC). IN THE INSTANT CASE, THERE IS NOTHING TO SUGGEST THAT THE AO FOUND THE PAYMENT OF ITA NO.2928/DEL./2010 7 INTEREST EXCESSIVE HAVING REGARD TO EITHER ( A ) FAIR MARKET VALUE OF THE SERVICES OR FACILITIES; OR ( B ) THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSES SEE; OR ( C ) THE BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH SERVICES OR FACILITIES. NOT A WHISPER HAS BEEN MADE BY THE AO IN RESPECT OF ANY OF THESE THREE INGREDIENTS IN HIS ASSESSMENT ORDER. THERE IS NOTHING TO SUGGEST THAT THE AO EVER BROUGHT ANY MATERIAL ON RECORD ON THIS ASP ECT BEFORE CONCLUDING THAT INTEREST @15% WAS EXCESSIVE. OR UNREASONABLE. IN VIEW THE FOREGOING, ESPECIALLY WHEN THERE IS NO MATERIAL ON RECORD TO HOLD THAT PAYMENT OF INTEREST @15%PA TO UNSECURED CREDITORS WAS EXCESSIVE, WE HA VE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE , GROUND NO. 2 IN THIS APPEAL IS ALSO DISMISSED. 7. GROUND NO.3 IN THE APPEAL BEING GENERAL IN NATU RE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US, DOES NOT REQUIRE ANY SE PARATE ADJUDICATION AND IS, THEREFORE, DISMISSED. 8. NO OTHER PLEA OR SUBMISSION WAS MADE B EFORE US. 9. IN RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- ( I.P. BANSAL) (A.N.PAHU JA) JUDICIAL MEMBER ACCOUNTANT MEMBER NS COPY OF THE ORDER FORWARDED TO :- 1. SHRI AJAY KUMAR GUPTA, AMBER HANDLOOK IND. KHAND AK BAZAR, MEERUT. 2. INCOME TAX OFFICER, WARD-1(1), MEERUT. 3. CIT (APPEALS)-MEERUT 4. THE CIT CONCERNED. 5. THE DR, ITAT,D BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI