ACIT 6(3), MUMBAI V. METRO ISPAT P. LTD, MUMBAI

ITA 3012/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7750 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2003-2004
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UTTAM CHAND BOTHRA
• Assessee Lawyers: ASHIMA GUPTA
• Keywords: Fair market value; Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M) ITA NO.3012/MUM/2010(A.Y. 2003-04) THE ACIT, CIR. 6(3), ROOM NO.522, 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. (APPELLANT) VS. M/S. METRO ISPAT P. LTD. 3 RD FLOOR, POTIA INDUSTRIAL ESTATE, DARUKHANA, REAY ROAD, MUMBAI 10. PAN:AABCM 8021M (RESPONDENT) APPELLANT BY : SMT. ASHIMA GUPTA REVENUE BY : SHRI UTTAMCHAND BOTHRA ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 9/12/ 2009 OF CIT(A) 12, MUMBAI RELATING TO THE ASSESSMENT YE AR 2003-04. THE GROUND OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST OF RS.6,42,820/- MADE BY THE AO U/S. 40A(2)(B) OF THE ACT IGNORING THE FACT THAT THE ASSESSEE HAS PAID INTEREST AT EXCESSI VE RATES TO ITS RELATED PARTIES. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF ROUNDS AND TMT BARS. THE ASSESSEE FILED THE RETURN OF INCOME FOR A.Y 2003-04 DECLARING A LOSS OF RS. 69,1 6,702/-. THE SAME WAS ACCEPTED UNDER SECTION 143(1) OF THE INCOME TAX AC T (THE ACT) ON 12/3/2004. ON 28/3/2008 A NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED. IN THE REASSESSMENT PROCEEDINGS UNDER SECT ION 147 OF THE ACT THE ITA NO.3012/MUM/2010(A.Y. 2003-04) 2 AO NOTICED THAT THE ASSESSEE HAD PAID INTEREST ON D EPOSITS FROM RELATIVES. THE RELATIVES WERE 24 IN NUMBER AND THE DETAILS HAV E BEEN SET OUT IN THE TAX AUDIT REPORT IN THE COLUMN WHETHER PROVISIONS OF SE C.40A(2)(B) OF THE ACT APPLICABLE TO ANY PAYMENTS SHOWN IN PROFIT AND LOSS ACCOUNT. THE RATE OF INTEREST PAID BY THE ASSESSEE WAS BETWEEN 18% IN RE SPECT OF DEPOSITS FROM 20 PERSONS AND 15.6% IN THE CASE OF THE REMAINING F OUR DEPOSITS OUT OF 24 DEPOSITS. THE ASSESSEE PLEADED BEFORE THE AO THAT OUT OF THE 24 DEPOSITS, SOME ARE FROM PERSONS WHO CANNOT BE REGARDED AS REL ATIVES WITHIN THE MEANING OF SEC.40A(2)(B) OF THE ACT AND THAT THE IN TEREST PAID TO SUCH PERSONS WHO WERE NOT RELATIVES AND THE INTEREST PAI D TO RELATIVES WERE AT THE SAME RATE. THE AO DID NOT CONSIDER THIS PLEA OF AS SESSEE AT ALL. THE AO WAS OF THE VIEW THAT THE INTEREST SO PAID WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE. ACCORDING TO THE AO THE RATE OF 12% WHICH BANK RATE WOULD BE REASONABLE. ACCORDINGLY THE AO HELD THAT PAYMENT OF INTEREST TO THE EXTENT OF RS.6,42,820/- IS EXCESSIV E. ACCORDINGLY THE SAID AMOUNT WAS ADDED TO THE TOTAL INCOME OF THE ASSESSE E. 3. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED TH E ADDITION MADE BY THE AO BY FOLLOWING THE ORDER OF THE CIT(A) ON IDENTICA L ISSUE IN ASSESSEES OWN CASE FOR A.Y 2005-06, WHEREIN SIMILAR DISALLOWANCE OF INTEREST UNDER SECTION 40A(2)(B) OF THE ACT WAS DELETED BY THE CIT(A). 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE CIT(A). 5. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BRO UGHT TO OUR NOTICE THAT THE ORDER OF THE CIT(A) FOR A.Y 2005-06 WAS SUBJECT MATTER OF APPEAL BY THE REVENUE IN ITA NO.4069/M/08 AND THIS TRIBUNAL ON AN IDENTICAL ISSUE HELD AS FOLLOWS: ITA NO.3012/MUM/2010(A.Y. 2003-04) 3 14. ON THE OTHER HAND, LD. COUNSEL APPEAL ON BEHA LF OF THE ASSESSEE ADVERTED OUR ATTENTION TO PAGES 70,75 TO 78 OF THE PAPER BOOK TO SUBMIT THAT THE ASSESSEE OBTAINED UNSECURED LOANS F ROM OUTSIDERS ALSO, WHO WERE WRONGLY SPECIFIED AS RELATIVES, AND INTEREST WAS PAID TO THEM AT 18%. SIMILARLY UNSECURED LOANS WERE OBTAIN ED FROM THE DIRECTORS AND OTHER RELATIVES @ 18% P.A. INTEREST PAID @ 18% CANNOT BE HELD TO BE EXCESSIVE MERELY BECAUSE BANK CHARGES LESSER RATE OF INTEREST; DISALLOWANCE IS NOT CALLED FOR MERELY BY COMPARING IT WITH THE BANK LOANS WHICH FOLLOW STRICT NORMS IN GRANTING LO ANS. HE THUS STRONGLY SUPPORTED THE ORDER OF THE LEARNED CIT(A). 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSE E PAID INTEREST ON UNSECURED LOANS (OBTAINED FROM OUTSIDERS) AND INTER EST PAID THEREON, VARYING FROM 12 TO 18% TO OUTSIDERS, WAS CLAIMED AS DEDUCTION AND ACCEPTED BY THE ASSESSING OFFICER. SUCH BEING THE CASE, MERELY BECAUSE FEW LOANS WERE TAKEN FROM THE RELATIVES, INTEREST PAID @ 18% CANNOT BE HELD TO BE EXCESSIVE AND UNREASONABLE. H AVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). ACCORDINGLY, GROU ND NO.2 IS REJECTED. OTHER GROUNDS URGED BEFORE US ARE GENERAL IN NATURE AND THEREFORE, DO NOT REQUIRE INDEPENDENT CONSIDERATION. 6. SINCE THE FACTS AND CIRCUMSTANCES UNDER WHICH T HE ADDITION WAS MADE BY THE AO IN THE PRESENT ASSESSMENT YEAR IS IDENTICAL TO THE ADDITION MADE IN A.Y 2005-06, THE ABOVE REASONING OF THE TRIBUNAL W OULD EQUALLY APPLY TO THE PRESENT ASSESSMENT YEAR ALSO. RESPECTFULLY FOLLOWI NG THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE WE UPHOLD THE ORDER OF T HE CIT(A) AND DISMISS THE APPEAL BY THE REVENUE. ITA NO.3012/MUM/2010(A.Y. 2003-04) 4 7. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST DAY OF MARCH, 2011. SD/- SD/- (PRAMOD KUMAR) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 31 ST MARCH, 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.3012/MUM/2010(A.Y. 2003-04) 5 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 29/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 29/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPR OVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER