TRIMURTY COLONIZERS & BUILDERS P LTD., Jaipur V. DCIT, Jaipur

ITA 314/JPR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2109 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 28-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA CIT DHK
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 314/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13. TRIMURTY COLONIZERS & BUILDERS P. LTD., 601, GEETA ENCLAVE, VINOBHA MARG, C-SCHEME, JAIPUR. CUKE VS. THE DCIT, CENTRAL CIRCLE-3, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACT 6613 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) AND SHRI ROHAN SOGANI (CA JKTLO DH VKSJ LS@ REVENUE BY : SHRI VARINDER MEHTA (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18.08.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 04/09/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL BY THE ASSESSEE IS FILED AGAINST THE OR DER OF LD. CIT (A)-4, JAIPUR DATED 07.02.2017 PERTAINING TO ASSESSMENT YEAR 2012 -13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT (A) OUGHT TO HAVE DELETED THE ADDITION MADE BY THE AO U /S 40A(2)(B) OF THE INCOME TAX ACT, 1961 SINCE THE PAYMENT IS NEITH ER EXCESSIVE NOR UNREASONABLE UNDER THE PECULIAR FACTS AND CIRCUMSTA NCES OF THE CASE. 2. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE CAS E, THE CIT (A) OUGHT TO HAVE FURTHER HELD THAT SINCE THE AO HAVING FAILED TO BRING ANY COGENT EVIDENCES TO JUSTIFY THAT INTEREST PAID AT 1 5% IS EXCESSIVE OR UNREASONABLE, THE CONDITION PRECEDENT FOR INVOKING SECTION 40A(2) IS NOT SATISFIED. 2 ITA NO.314/JP/2017 TRIMURTY COLONIZERS & BUILDERS P. LTD., JAIPUR. 3. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE CAS E, THE CIT (A) OUGHT TO APPRECIATED FROM THE DETAILS SUBMITTED BEF ORE THE AO THAT THE APPELLANT HAVING ALSO PAID INTEREST @ 14.4% TO OUTS IDERS, THE INTEREST PAYMENT COMMENSURATE WITH THE PREVAILING INDUSTRY N ORMS. THE IMPUGNED ADDITION IS BASELESS AND CONTRARY TO THE L AW. 4. IN LAW, IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE CIT (A) HAS GROSSLY ERRED IN CONFIRMING THE IMPUGNED ADDITI ON OF RS. 26,811/- OF INTEREST PAID U/S 40A(2)(B) OF THE ACT ALLEGING THE LACK OF COMMERCIAL EXPEDIENCY. THE IMPUGNED ADDITION IS THEREFORE CONT RARY TO THE SCOPE OF PROVISION OF SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961. 5. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE CAS E, THE CIT (A) OUGHT TO HAVE INTER ALIA APPRECIATED THAT SINCE THE AO HAVING EXAMINED THE LEGITIMACY OF THE PAYMENT OF INTEREST PAID BY T HE APPELLANT TO THESE PARTIES IN THE PAST ASSESSMENTS, THE LEARNED CIT (A ) OUGHT TO HAVE THEREFORE DELETED THE SAID ADDITION. 6. THE APPELLANT CRAVES THE RIGHT TO ADD TO OR ALTE R, AMEND, SUBSTITUTE, DELETE OR MODIFY ALL OR ANY OF THE ABOV E GROUNDS OF APPEAL. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMEN T WAS FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE ORDER DATED 08.01.2014. WHILE FRAMING THE ASSESSMENT, TH E AO MADE DISALLOWANCE OF INTEREST EXPENSES BY INVOKING THE PROVISIONS OF SEC TION 40A(2)(B) OF THE ACT. AGAINST THIS ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT (A), WHO AFTER CONSIDERING THE SUBMISSIONS CONFIRMED THE ADDITION. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 3. THERE IS ONLY ONE EFFECTIVE GROUND IN THIS APPEA L AGAINST THE ADDITION OF RS. 26,811/- UNDER SECTION 40A(2)(B) OF THE ACT. 3.1. THE LD. COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSIONS. THE LD. COUNSEL SUBMITTED THA T FIRSTLY THE AO WAS NOT JUSTIFIED 3 ITA NO.314/JP/2017 TRIMURTY COLONIZERS & BUILDERS P. LTD., JAIPUR. IN INVOKING THE PROVISIONS OF SECTION 40A(2)(B). HE SUBMITTED THAT THE PAYMENT IS NOT MADE TO THE DIRECTOR OF THE COMPANY BUT THE COMPANY ITSELF. 3.2. ON THE CONTRARY, THE LD. D/R SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. 3.3. WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE M ATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE AO HAS DECIDED THIS ISSUE IN PARA 4.3 OF HIS ORDER AS UNDER :- 4.3. I HAVE CONSIDERED THE REPLY OF THE ASSESSEE CAREFULLY AND NOT FOUND SATISFACTORY. THE SUBMISSION OF THE ASSESSEE IN SUMMARY IS THAT THESE LOANS WERE TAKEN FOR COMMERCIAL EXPEDIENCY AN D TO MEET CONTINGENCIES ARISEN AND TO MEET BUSINESS NEED. THE ASSESSEE FURTHER SUBMITTED THAT EVEN THE LOAN FROM OTHER PARTIES IS SMALL AND THAT ARE NOT SUFFICIENT TO MEET WORKING CAPITAL REQUIREMENTS OF THE PROJECTS WHICH ARE UNDERGOING AND THE ASSESSEE IS REQUIRED T O CARRY ON THE CONSTRUCTIONS SO AS TO RETAIN THE LABOUR FORCE. FU RTHER, IT HAS BEEN SUBMITTED THAT THERE IS SCHEDULE COMMITMENT TOO AND THEREFORE UNDER THE CIRCUMSTANCES MANAGEMENT DECIDED TO TAKE LOANS FROM THE DIRECTORS. THE SUBMISSION OF THE ASSESSEE DOES NOT CARRY MUCH WEIGHT. EVEN IF IT IS ACCEPTED THAT LOANS WERE OBTAINED FOR COMMERCIAL EXPEDIENCY AND IT WAS COMPELLED TO TAKE LOANS FROM KEY PERSONS OF THE GROUP DUE TO MARKET POSITION/SITUATION IT DOES NOT JUSTIFY THE AVAILING OF LOANS BY THE ASSESSEE FROM KEY PERSONS OF THE GROUP AT A VERY HIGHER RATE. HAD THERE BEEN BUSINESS EXPEDIENCY AS CLAIME D BY THE ASSESSEE BUT NO PRUDENT BUSINESS PERSON WILL TAKE LOANS ON H IGHER INTEREST RATE AND GIVE LOANS ON LOW INTEREST RATE. THEREFORE, IT CANNOT BE SAID TO BE BUSINESS PRUDENCE TO AVAIL LOANS AT HIGHER RATE FRO M THE PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE IT ACT, 1961 AND TO GIVE LOANS AT LOWER RATE TO THE PERSONS AGAIN COVERED UNDER SE CTION 40A(2)(B) OF THE IT ACT, 1961. THUS THE ASSESSEE ON THE ONE HAN D HAD RECEIVED LOAN AT HIGHER INTEREST RATE FROM ITS SISTER CONCER N AND GIVING IT TO OTHER 4 ITA NO.314/JP/2017 TRIMURTY COLONIZERS & BUILDERS P. LTD., JAIPUR. SISTER CONCERN AT LOWER INTEREST RATE. THEREFORE IT IS CLEAR THAT THE ASSESSEE MADE PAYMENT OF INTEREST ON HIGHER SIDE TO THE ABOVE PERSON SPECIFIED UNDER SECTION 40A(2)(B) WHICH IS ALLOWABL E TO EXTENT OF 12.50% AS PREVAILING IN THE MARKET AND THE ASSESSEE COMPANY ITSELF RECEIVED INTEREST @ 12.50%. HENCE INTEREST CALCULA TED @ 12.50% PER ANNUM ON INTEREST PAID TO SHRI UDAI KANT MISHRA IS ALLOWED AND BALANCE INTEREST PAID TO THEM IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THIS WOULD RESULT AN ADDITION OF RS. 26,811/- WHICH IS WORKED OUT AS UNDER :- S.NO. NAME OF THE PERSONS TO WHOM INTEREST PAID AMOUNT OF INTEREST PAID RATE OF INTEREST PAID AMOUNT OF INTEREST ALLOWABLE TO THE EXTENT OF 12.50% DISALLOWANCE OF INTEREST. 1. SHRI UDAI KANT MISHRA RS. 1,60,865/- 15.00% RS. 1,34,054/- RS. 26,811/- TOTAL RS. 26,811/- THE LD. CIT (A) CONFIRMED THE SAME BY OBSERVING AS UNDER :- 3.1.3. I HAVE DULY CONSIDERED ASSESSEES SUBMISSION AND CAREFULLY GONE THROUGH ASSESSMENT ORDER PASSED BY T HE AO. I HAVE ALSO TAKEN A NOTE OF FACTUAL MATRIX OF THE CAS E AS WELL AS APPLICABLE CASE LAWS RELIED UPON BY THE ASSESSEE. I N THIS CASE AGAINST TOTAL INCOME OF RS. 12,40,330/- DECLARED IN THE RETURN OF INCOME FOR THE YEAR, AO COMPLETED THE ASSESSMENT OR DER ON 08.01.2015 AT A TOTAL INCOME AT RS. 12,67,140/- AFT ER MAKING THE ADDITION OF RS. 26,811/- TOWARDS INTEREST BY INVOKI NG THE PROVISION OF SECTION 40A(2) OF THE ACT WHEREIN AO H ELD THAT THE INTEREST PAID TO PERSON SPECIFIED U/S 40A(2)(B) OF THE ACT IS ALLOWABLE TO THE EXTENT OF 12.5% WHICH IS MARKET RA TE. IN VIEW OF THIS FINDING, AO DISALLOWED EXCESS OF INTEREST OVER 12.5% IN FOLLOWING CASE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. SL NAME OF PERSON TO WHOM INTEREST PAID AMOUNT OF INTEREST PAID RATE OF INTEREST AMOUNT OF INTEREST ALLOWED TO THE EXTENT OF 12.50% BALANCE INTEREST DISALLOWED OVER 12.50% 1 UDAI KANT MISHRA RS. 1,60,865 1 5 .00% RS. 1 ,34.054 RS. 26,811/ - 5 ITA NO.314/JP/2017 TRIMURTY COLONIZERS & BUILDERS P. LTD., JAIPUR. AGGRIEVED ASSESSEE IS IN APPEAL AGAINST THE ASSESSM ENT ORDER PASSED AND RELIED UPON FOLLOWING JUDICIAL PRO NOUNCEMENTS: GUJARAT GAS FINANCIAL SERVICES LTD (GUJ) ENVIRO CONTROL ASSOCIATED (P) LTD RAMAVATAR GARG (ITAT JAIPUR) UDAIPUR DISTILLERY CO. LTD (RAJASTHAN) SUBHASH CHANDRA (SOT ASR) SA BUILDERS LTD (C) BANSILAR GUPTA (SOT ASR) ALFA RUBBER INDUSTRIES (ASR) CHAMBA MAL ROOPCHAND (ASR) HYNOUP FOOD & OIL INDUSTRIES PVT LTD(AHD) IT HAS BEEN REPEATEDLY HELD BY HONBLE APEX COURTS THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER I N SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF BUSINESS FOR EARNI NG PROFIT. THEREFORE, IT IS REQUIRED TO BE EXAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED MONEY TO ITS SISTER CONCERNS, AND WHAT THE SISTER CONCERN DID WITH THE MONEY, IN ORDER TO DECIDE WHETHER IT WAS F OR COMMERCIAL EXPEDIENCY. BUT HERE IT IS PERTINENT TO MENTION THA T IN CASE OF ADDL CIT VS. M/S TULIP STAR HOTELS LTD IN ITA NO. 43/2009, 5 05/2010 & 562/2010, THERE JUDGES BENCH OF HONBLE SUPREME COURT HAVE HE LD AS UNDER: IN OUR VIEW, S.A. BUILDERS LTD. VS. COMMISSIONER O F INCOME-TAX (APPEALS) AND ANOTHER, REPORTED IN 288 I TR 1 NEEDS RECONSIDERATION ... IN VIEW OF HONBLE APEX COURTS OBSERVATION, IN THI S CASE, THERE IS A NEED OF THE HOUR TO CLEARLY ESTABLISH THE PRINCIP LE OF COMMERCIAL EXPEDIENCY. BUT, ASSESSEE HAS FAILED ESTABLISH THE SAME BEFORE THE AO AND ALSO DURING THE APPELLATE PROCEEDING. AS SESSEES SUBMISSION IS NOT BASED ON FACTS TO ESTABLISH ITS C LAIM OF COMMERCIAL EXPEDIENCY. ACCORDING, THE SAME IS EXAMI NED IN PARA BELOW. 6 ITA NO.314/JP/2017 TRIMURTY COLONIZERS & BUILDERS P. LTD., JAIPUR. HERE, IT IS PERTINENT TO MENTION THAT SH UDAI KANT MISHRA IS THE KEY PERSON AND CMD OF THE THE TRIMURTY GROUP. M/S TRIMURTY COLONIZER AND BUILDERS P LTD. ALSO BELONGS TO THIS TRIMURTY GROUP. ON PERUSAL OF ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE, IT IS SEEN THAT ASSESSEE IS MAKING ADVANCE TO VARIOUS PERSON AT INTEREST RATE OF @ 12.50% WHEREAS IT IS PAYING INTEREST ON LOAN TAKEN FOR GIVING ABOVE ADVANCES @ 15% TO SH UDAI KANT MISHRA. THUS, THE MARKET RATE OF INTEREST IS 12.5% WHEREAS ASSESSEE IS MAKING PAYMENTS TO ABOVE PERSON S AT HIGHER RATE AND THEREFORE PAYMENT OF INTEREST TO ABOVE MEN TIONED PERSONS IS EXCESSIVE AND UNREASONABLE. THE VARIOUS CASES REFERRED BY THE AR ARE DISTINGUISHABLE ON FACTS AS IN THESE CASES THE RATE OF INTEREST CHARGED WAS MUCH MORE THAN THE RATE OF INTEREST PAID. THEREFORE AO HAS CORRECTLY, DISALLOW ED THE CLAIM OF INTEREST TO RS. 26,811/-. ASSESSEES APPEAL IN GR N O. 1 & 2 FAILS. FROM THE ABOVE FINDINGS OF THE AUTHORITIES BELOW, I T IS CLEAR THAT BOTH THE AUTHORITIES BELOW HAVE NOT COMMENTED UPON AS TO HOW SH. UDAI KA NT MISHRA WOULD BE COVERED UNDER THE PROVISIONS OF SEC.40A(2)(B).HOWEVER, HAVI NG SEEN THE PATTERN OF SHAREHOLDING, AND AFTER TAKING INTO CONSIDERATION T HE TOTALITY OF FACTS AND JUDICIAL PRONOUNCEMENTS, WE ARE OF THE CONSIDERED VIEW THAT THE REASONABLE RATE OF INTEREST OUGHT TO HAVE BEEN ADOPTED AT 14% AGAINST 12.5% AS ADOPTED BY THE AO IN VIEW OF THE FACT THAT THE AMOUNT SO RECEIVED BEING UNSECURE D LOAN.MOREOVER, THE AO HAS NOT GIVEN ANY FINDING WITH REGARD TO THE MARKET VALUE O F THE INTEREST WHICH IS SINE QUA NON FOR MAKING DISALLOWANCE UNDER SEC.40A(2)(B). IN VIEW OF THE ABOVE OBSERVATION, 7 ITA NO.314/JP/2017 TRIMURTY COLONIZERS & BUILDERS P. LTD., JAIPUR. THE AO IS HEREBY DIRECTED TO RE-COMPUTE THE DISALLO WANCE. THE GROUND OF THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 04.09.2 017. SD/- SD/- ( HKKXPUN ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 04/09/2017. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S. TRIMURTY COLONIZERS & BUILD ERS PVT. LTD., JAIPUR. 2. THE RESPONDENT THE DCIT CENTRAL CIRCLE-3, JAIP UR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 314/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 8 ITA NO.314/JP/2017 TRIMURTY COLONIZERS & BUILDERS P. LTD., JAIPUR.