Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 7367 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-07-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
D
Assessment Year
2012-2013
Appeal Filed On
11-05-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 3110 , 3111 & 3112 / MUM . /2018 ( ASSESSMENT YEAR : 20 12 13 , 2013 14 & 2014 15 ) MOTILAL LAXMICHAND SANGHAVI 113, KIKA STREET, GULAL WADI MUMBAI 400 004 PAN AAEFM7506M . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1 9 (2), MUMBAI . RESPONDENT ASSESSEE BY : SHRI JITENDRA SINGH REVENUE BY : SHRI D.G. PANSARI DATE OF HEARING 09 .0 7 .2019 DATE OF ORDER 26.07.2019 O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED APPEAL S FILED BY THE SAME ASSESSEE ARISE OUT OF THREE SEPARATE ORDER S , ALL DATE D 12 TH MARCH 2018, OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 6, MUMBAI, FOR THE ASSESSMENT YEAR S 2012 13, 2013 14 AND 2014 15. 2 . SINCE ALL THESE APPEALS PERTAIN ING TO THE SAME ASSESSEE AND INVOLVING COMMON ISSUES , EXCEPT VARIATION IN FIGURES , ARE ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THE REFORE, AS A MATTER OF 2 MOTILAL LAXMICHAND SANGHAVI CONVENIENCE, THESE APPEALS WERE HEARD TOG ETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 3 . GROUND NO.1, IN ALL THESE APPEALS IS GENERAL IN NATURE , HENCE, DOES NOT REQUIRE ADJUDICATION. 4 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). 5 . BRIEF FACTS ARE, THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL, TUBES AND PIPES, ETC. FOR THE ASSESSMENT YEARS UNDER DISPUTE, THE ASSESSEE HAD FILED ITS RETURNS OF INCOME VOLUNTARILY WITHIN THE DUE DATE PRESCRIBED UNDER THE STATUTE. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR S , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE ON UNSECURED LOANS AVAILED FROM HINDU UNDIVIDED FAMILY (HUF) OF THE PARTNERS WHO ARE RELATED PART IES . THEREFORE, HE CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF LOAN AND INTEREST PAYMENT TO THE CONCER NED PARTIES. AFTER PERUSING THE DETAILS, HE FOUND THAT THE ASSESSEE HAD PAID INTEREST @ 15% ON THE UNSECURED LOANS. SINCE , THE UNSECURED LOANS WERE AVAILED FROM RELATED PARTIES, THE ASSESSING OFFICER WAS OF THE VIEW THAT INTEREST PAID @ 15% IS UNREASONABLE HAVING REGARD TO THE MARKET RATE OF INTEREST. 3 MOTILAL LAXMICHAND SANGHAVI ACCORDINGLY, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE OF INTEREST EXPENDITURE SHOULD NO T BE MADE UNDER SECTION 40A(2)(B ) OF THE ACT. THOUGH , THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE, H OWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED , ON THE INVESTMENT MADE IN FIXED DE POSIT BY UTILIZING ITS OWN FUND THE ASSESSEE IS EARNING LESS INTEREST , WHEREAS , ON THE UNSECURED LOANS AVAILED FROM RELATED PARTIES IT IS PAYING INTEREST AT HIGHER RATES. THUS, HE HELD THAT INTEREST PAID @ 15% PER ANNUM IS UNREASONABLE HAVING REGARD TO THE MARKET RATE. FURTHER, T HE ASSESSING OFFICER HELD THAT THE REASONABLE RATE OF INTEREST WHICH SHOULD HAVE BEEN PAID ON THE UNSECURED LOANS IS @ 12%. ACCORDINGLY, THE ASSESSING OFFICER RESTRICTED ASSESSEES CLAIM WITH REGARD TO INTEREST EXPENDITURE ON UNSECURED LOANS TO 12% PER ANNUM BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT . AS A RESULT, THE FOLLOWING DISALLOWANCES OUT OF INTEREST EXPENDITURE WERE MADE IN DIFFERENT ASSESSMENT YEARS UNDER APPEAL: A.Y. 2012 13 ` 7,60,187 A.Y. 2013 14 ` 13,51,383 A.Y. 2014 15 ` 17,08,235 6 . BEING AGGRIEVED WITH THE AFORESAID DISALLOWANCE S , THOUGH , THE ASSESSEE PREFERRED APPEALS BEFORE LEARNED COMMISSIONER (APPEALS), HOWEVER, IT DID NOT SUCCEED. 4 MOTILAL LAXMICHAND SANGHAVI 7 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , BEFORE INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION THAT THE INTEREST PAID ON UNSECURED LOAN IS NOT IN ACCORDANCE WITH THE MARKET RATE. HE SUBMITTED , NO MATERIAL HAS BEEN BROUGHT ON RECOR D BY THE ASSESSING OFFICER TO DEMONSTRATE THAT INTEREST PAID @ 15% IS NOT AS PER MARKET RATE OF INTEREST ON SUCH TYPES OF LOANS. HE SUBMITTED , THESE LOANS WERE CONTINUING FROM PAST YEARS AND NO DISALLOWANCE OF INTEREST EXPENDITURE ON SUCH UNSECURED LOANS H AS EVER BEEN MADE BY THE ASSESSING OFFICER IN THE PAST ASSESSMENT YEARS. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , MERELY BECAUSE THE RATE OF INTEREST ON FIXED DEPOSIT IS LESS THAN THE INTEREST PAID ON UNSECURED LOANS, IT CANNOT BE SAID THAT IN TERES T PAID ON UNSECURED LOANS IS UNREASONABLE. IN SUPPORT OF HIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) AJANTA HANDTECHS LTD. V/S ITO, ITA NO.4573/DEL./2015, DATED 26.11.2015 ; AND II ) DCIT V/S PARK VIEW DEVELOPERS , ITA NO.7005 & 733/MUM./ 2018, DATED 05.10.2018. 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THE RATE AT WHICH THE ASSESSEE HAS PAID INTEREST ON UNSECURED LOANS AVAILED FROM THE RELATED PARTIES BEING HIGHER THAN THE MARKET RATE, THE ASSESSING 5 MOTILAL LAXMICHAND SANGHAVI OFFI CER WAS JUSTIFIED IN MAKING DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT. 9 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON REC ORD. A READING OF THE PROVISION OF SECTION 40A(2) OF THE ACT AS A WHOLE MAKES IT CLEAR THAT IF IN THE OPINION OF THE ASSESSING OFFICER, THE EXPENDITURE CLAIMED BY THE ASSESSEE IN RESPECT OF PAYM ENT MADE TO ANY RELATED PARTY/ ASSOCIATED CONCERN IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE , DISALLOWANCE HAS TO B E MADE UNDER THE SAID PROVISION . THEREFORE, BEFORE MAKING ANY DISALL OWANCE UNDER THE SAID PROVISION , TWO CONDITIONS HAVE TO BE SATISFIED. FIRSTLY, THE PAYMENT IN RESPECT OF WHICH DEDUCTION HAS BEEN CLAIMED MUST HAVE BEEN MADE TO A RELATED PARTY AND SECONDLY, SUCH PAYMENT MUST BE EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE MARKET RATE. THEREFORE, THE ASSESSING OFFICER MUST FORM AN OPINION OBJECTIVELY ON THE BASIS OF MATERIAL BROUGHT ON RECORD TO DEMONSTRATE THAT THE PAYMENT MADE BY THE ASSESSEE IS EXCESSIVE AND UNREASONABLE HAVING REGAR D TO THE MARKET RATE. NO DOUBT, IN THE FACTS OF THE PRESENT CASE , THE FIRST CONDITION OF SECTION 40A(2) OF THE ACT HAS BEEN FULFILLED AS THE ASSESSEE HAS MADE THE PAYMENT TO THE RELATED PARTIES. HOWEVER, AS REGARDS THE SECOND CONDITION RELATING TO UNREASONABLENESS OF THE PAYMENT MADE, ON A PERUSAL O F THE IMPUGNED ASSESSMENT ORDER IT IS NOTICED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON 6 MOTILAL LAXMICHAND SANGHAVI RECORD TO DEMONSTRATE THAT THE PAYMENT MADE IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE MARK ET RATE. SIMPLY STATING THAT THE RATE OF INTEREST PAID ON UNSECURED LOAN IS HIGHER THAN THE FIXED DEPOSIT INTEREST RATE, THE ASSESSING OFFICER HAS RESTRICTED THE RATE OF INTEREST ON UNSECURED LOANS TO 12% PER ANNUM . THE ASSESSING OFFICER HAS NOT BROUGHT AN Y COMPARABLE CASE TO DEMONSTRATE THAT THE MARKET RATE OF INTEREST ON UNSECURED LOAN IS 12%. THE ASSESSING OFFICER CANNOT EQUATE THE RATE OF INTEREST ON BANK FIXED DEPOSIT WITH UNSECURED LOAN AS UNSECURED LOANS ARE WITHOUT ANY SECURITY, HENCE, THE LENDER AL WAYS CARRIES THE RISK OF NOT BEING ABLE TO RECOVER THE MONEY. THEREFORE, THE RATE OF INTEREST IS ALWAYS LITTLE HIGHER COMPARED TO THE RATE OF BANK INTEREST. THE DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUPPORT THIS VIEW. THEREFORE, IN THE FACTS OF THE PRESENT CASE, IN OUR CONSIDERED OPINION, THE PAYMENT OF INTEREST @ 15% PER ANNUM ON UNSECURED LOANS AVAILED FROM RELATED PARTIES CANNOT BE CONSIDERED TO BE EXCESSIVE ON UNREASONABLE TO INVOKE THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. ACCORDINGLY, WE DELETE THE DISALLOWANCE S MADE BY THE ASSESSING OFFICER IN ALL THE ASSESSMENT YEARS UNDER APPEAL. GROUNDS ARE ALLOWED. 10 . IN GROUND NO.3 IN ALL THE APPEALS, THE ASSESSEE HAS CHALLENGED AD HOC DISALLOWANCE MADE OUT OF VARIOUS EXPENSES DEBITED T O THE PROFIT & LOSS ACCOUNT. 7 MOTILAL LAXMICHAND SANGHAVI 11 . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEBITED EXPENDITURE TO THE PROFIT & LOSS ACCOUNT UNDER VARIOUS HEADS SUCH AS TELEPHONE EXPENSES, MOTOR CAR EXPENSES, SALES PROMOTION EXPEN SES, TRAVEL EXPENSES, ETC. THEREFORE, HE CALLED UPON THE ASSESSEE TO FURNISH THE SUPPORTING DETAILS TO PROVE ITS CLAIM. FURTHER, HE CALLED UPON THE ASSESSEE TO SUBSTANTIATE THAT NO PERSONAL ELEMENT IS INVOLVED IN SUCH EXPENSES. ALLEGING THAT THE ASSESSEE C OULD NOT FURNISH THE LOG BOOK TO PROVE THE MOTORCAR EXPENSES AND HOLDING THAT THE PERSONAL ELEMENT CANNOT BE RULED OUT, HE DISALLOWED 10% OUT OF THE TOTAL EXPENSES CLAIMED IN ALL THE ASSESSMENT YEARS UNDER APPEAL. THOUGH , THE ASSESSEE CHALLENGED THE AFORES AID DISALLOWANCE S BEFORE THE LEARNED COMMISSIONER (APPEALS), HOWEVER, THE DISALLOWANCE S WERE SUSTAINED. 12 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS). 13 . WE HAVE CONSIDERED RIVAL SU BMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN IN COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FURNISHED CERTAIN D ETAILS. HOWEVER , IT COULD NOT FURNISH THE LOG BOOK TO SHOW THE USAGE OF THE MOTORCAR. SIMILARLY, THE ASSESSEE COULD NOT B RING SUFFICIENT MATERIAL ON RECORD TO SHOW THAT THE TELEPHONE WAS NOT USED FOR PERSONAL PURPOSE. IN SUCH CIRCUMSTANCES, 8 MOTILAL LAXMICHAND SANGHAVI PART DISALLOWANCE OUT OF THE MOTORCAR AND TELEPHONE EXPENSES HAVE TO BE SUSTAINED AS PERSONAL USE OF THE MOTOR CAR AND TELEPHONE CANNOT BE RULED OUT. HOWEVER, INSOFAR AS THE SALE PROMOTION AND TRAVEL EXPENSES ARE CONCERNED, AS PER THE ASSESSING OFFICERS OWN ADMISSION, THE ASSESSEE HAD SUBMITTED THE DETAILS OF SUCH EXPENSES. THEREFORE, WITHOUT MAKING NECESSARY ENQUIRY TO PROVE THAT THE EXP ENDITURE CLAIMED BY THE ASSESSEE UNDER THESE TWO HEADS IS NOT GENUINE OR UNVERIFIABLE, THE ASSESSING OFFICER CANNOT DISALLOW A PART OF IT PURELY ON AD HOC BASIS. THEREFORE, IN OUR VIEW, NO DISALLOWANCE OUT OF SALE S PROMOTION AND TRAVELLING EXPENSES ARE CAL LED FOR. IN VIEW OF THE AFORESAID, WE SUSTAIN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF MOTOR CARE AND TELEPHONE EXPENSES. HOWEVER, WE DELETE THE DISALLOWANCE MADE UNDER SALES PROMOTION AND TRAVEL EXPENSES. GROUND RAISED IS PARTLY ALLOWED. 14 . G ROUND NO.4 IN ALL THESE APPEALS BEING CONSEQUENTIAL IN NATURE DOES NOT REQUIRE ADJUDICATION. 15 . IN THE RESULT, ALL THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 26.07.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 26.07.2019 9 MOTILAL LAXMICHAND SANGHAVI COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI
