M/s. Akshar Finance Ltd., Ahmedabad V. The Income tax Officer,Ward-1(1), Ahmedabad

ITA 3215/AHD/2010

• Counselvise Citation: 321520514 RSA 2010
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID SR D R
• Keywords: Maximum Marginal Rate; Commercial expediency

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BENCH, AHMEDABAD , . .. . . .. . , , , , '# ' $ '# ' $ '# ' $ '# ' $ BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI T.R.MEENA, ACCOUNTANT MEMBER ./ I.T.A. NO.3215/AHD/2010 ( & ' (' & ' (' & ' (' & ' (' / / / / ASSESSMENT YEAR : 2006-07) M/S.AKSHAR FINANCE LTD. B-2, ASHOKA APARTMENT BESIDES ORIENT CLUB NR.GUJARAT COLLEGE ELLISBRIDGE, AHMEDABAD & & & & / VS. THE INCOME TAX OFFICER WARD-1(1) AHMEDABAD ) '# ./*+ ./ PAN/GIR NO. : AABCA 6184 H ( ), / // / APPELLANT ) .. ( -.), / RESPONDENT ) ), / ' / APPELLANT BY : SHRI SAMIR JANI, AR -.), 0 / ' / RESPONDENT BY : SHRI J.P. JHANGID, SR.DR &1 0 # / / / / DATE OF HEARING : 03/12/2013 23( 0 # / DATE OF PRONOUNCEMENT : 05/12/2013 '4 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHMEDABA D (CIT(A) FOR SHORT) DATED 21/10/2010 PERTAINING TO ASSESSMENT Y EAR (AY) 2006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEA L:- 1. LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.1430681/- MADE BY THE LEARNED A.O. ON ACCOUNT OF DIFFERENCE IN RATE OF INTEREST IN LENDING AND BORROWING OF LOANS. 2. LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ABOVE DI SALLOWANCE OF RS.1430681/- MADE BY THE A.O. U/S.40A(2)(B) ALTHOUG H THE A.O. HAS NOT PROVED THAT THE RATE OF INTEREST OF 15% IS HIGHER T HAN THE MARKET RATE OF INTEREST PREVAILING IN THE BUSINESS COMMUNITY AT TH E RELEVANT TIME. 3. LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CT THAT THE RECEIPT OF INTEREST BY LENDING TO THE SECURED BORROWERS IS REC EIPT ANALOGUES TO SALES IN THE CASE OF THE ASSESSEE AND SEC.40A(2)(B) CANNOT BE PRESSED INTO SERVICE FOR DISALLOWING SHORT REALIZATION OF S ALE PRICE BECAUSE IT IS ITA NO.3215/AHD /2010 M/S. AKSHAR FINANCE LTD. VS. ITO ASST.YEAR 2006-07 - 2 - APPLICABLE TO EXCESSIVE EXPENDITURE ONLY AND IS NOT APPLICABLE TO RECEIPTS. 4. LEARNED CIT(A) FURTHER FAILED TO APPRECIATE THAT TH E DIRECTORS/SHARE HOLDER OF THE COMPANY, FROM WHOM THE COMPANY HAD TA KEN LOANS ARE ASSESSED TO TAX AT THE HIGHEST RATES WHICH IS HIGHE R THAN THE TAX RATE APPLICABLE TO THE INCOME OF THE COMPANY AND THE REC IPIENTS OF THE INTEREST HAVE PAID MORE INCOME TAX ON THEIR INCREME NTAL INCOME BY WAY OF CHARGING INTEREST @ 15% ON THE LOANS ADVANCED TO THE COMPANY. THUS, THERE IS NO CASE FOR EVASION OF TAX. 5. LEARNED CIT(A) ERRED IN NOT ABIDING BY THE INSTRUCT ION OF CBDT VIDE CIRCULAR NO.6P DATED 06.07.1968 WHICH STATES THAT T HE PROVISION OF SEC..40A(2)(B) SHOULD BE USED ONLY N CASE OF TAX AV OIDANCE BY MAKING EXCESSIVE PAYMENTS TO RELATIVES AND SHOULD NOT BE A PPLIED WHERE THERE IS NO TAX AVOIDANCE. 6. LEARNED CIT(A) HAS ERRED IN OBSERVING AT PAGE 9 OF HIS ORDER THAT ONE OF THE TWO BORROWERS WAS SHOWING LOSS AND THEREFORE TH E ASSESSEE HAD CHARGED LESS INTEREST FROM IT AND THEREBY REDUCED I TS OWN INCOME. LEARNED CIT(A) HAS CONVENIENTLY IGNORED THE FACT TH AT ABOUT 80% OF LENDING WAS MADE TO THE FIRM WHICH IS PAYING TAX AT THE HIGHEST RATE WHICH IS EQUAL TO THE RATE APPLICABLE TO THE ASSESS EE COMPANY AND THEREFORE THERE WAS NO INTENTION OR EFFECT OF ANY T AX AVOIDANCE. 7. LD.CIT(A) HAS CONVENIENTLY IGNORED THE REPLY OF THE APPELLANT DATED 23.10.2010 AND THE JUDICIAL PRECEDENT HIGHLIGHTED T HEREIN. 8. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE THE HEARING OF APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) O F THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED V IDE ORDER DATED 08/12/2008, THEREBY THE ASSESSING OFFICER(AO) MADE ADDITION OF RS.14,30,681/- ON ACCOUNT OF DIFFERENCE IN RATE OF INTEREST IN LENDING AND BO RROWING OF LOANS BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. TH E ASSESSEE FEELING AGGRIEVED BY THE ORDER OF THE AO AND PREFERRED AN APPEAL BEFO RE THE LD.CIT(A), WHO REJECTED THE SUBMISSIONS OF THE ASSESSEE BY FOLLOWI NG THE ORDER IN EARLIER YEAR. 3. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT L D.CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ISSUE IN THE EARLIER Y EAR WAS DIFFERENT AND HE SUBMITTED THAT IN THE EARLIER YEAR THE CLAIM OF THE ASSESSEE WAS REJECTED ON THE ITA NO.3215/AHD /2010 M/S. AKSHAR FINANCE LTD. VS. ITO ASST.YEAR 2006-07 - 3 - BASIS THAT NO MATERIAL WAS BROUGHT ON RECORD BEFORE THE TRIBUNAL TO SHOW THAT THE SHAREHOLDERS PAID TAX ON THE ENTIRE AMOUNT OF I NTEREST 5% AT MAXIMUM RATE AND THEREBY NO LOSS TO THE REVENUE OF THE GOVERNMEN T TOOK PLACE BECAUSE OF THE ARRANGEMENT OF THE ASSESSEE. HE SUBMITTED THAT IN AY 2005-06, THE ASSESSEE WAS NOT ABLE TO PROVE THAT RECIPIENTS OF THE INTERE ST WERE PAYING MAXIMUM MARGINAL RATE OF TAX, THEREFORE, ITAT DECIDED THE C ASE AGAINST THE ASSESSEE, HOWEVER, IN SUPPORT OF HIS CONTENTION FOR AY 2006-0 7, HE REFERRED TO THE PAPER- BOOK AT PAGE NO.37 AND SHOWED THAT RECIPIENTS OF TH E INTEREST WERE PAYING MAXIMUM MARGINAL RATE OF TAX, THEREFORE THERE IS NO EVASION OF TAX. THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE CIRCULAR ISSUED BY CBDT NO.6-P DATED 06/07/1968. RELEVANT EXTRACTS FROM THE CBDT CIRCULAR ARE PLACED AT PAGE NOS.77 & 78 OF THE PAPER-BOOK. THE L D.COUNSEL FOR THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL) (P) LTD. REPORTED AT (2009) 310 ITR 306 (BOM.). 4. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW AND ALSO ARGUED THAT IDENTICAL ISSUE IN AY 2005-06 HAS BEEN DECIDED BY THE HONBLE ITAT-AHMEDABAD, VIDE ORDER DATED 18/09/2009 , AGAINST THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW AS WELL THE JUDGEMENT RELIED UPON BY THE LD.COUNSEL FOR THE ASS ESSEE. WE FIND THAT IN AY 2005-06 THIS ISSUE HAS BEEN DECIDED BY THE COORDINA TE BENCH (ITAT- AHMEDABAD) AGAINST THE ASSESSEE ON IDENTICAL FACTS, BUT THE ASSESSEE WAS NOT ABLE TO PROVE THAT RECIPIENTS OF THE INTEREST WERE ALSO PAYING TAX AT MAXIMUM MARGINAL RATE, HOWEVER IN THE INSTANT CASE, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THE DETAILS AT PAGE NO.37 OF THE PAPER-BO OK WHICH SHOWS THAT THE ITA NO.3215/AHD /2010 M/S. AKSHAR FINANCE LTD. VS. ITO ASST.YEAR 2006-07 - 4 - RECIPIENTS OF THE INTEREST WERE ALSO PAYING MAXIMUM MARGINAL RATE OF TAX, THEREFORE THERE IS NO EVASION OF TAX. THE UNDISPUT ED FACTS ARE THAT THE TRANSACTIONS HAVE BEEN EFFECTED BETWEEN THE RELATED PARTIES AS CONTEMPLATED U/S.40A(2)(B) OF THE ACT. THE ASSESSEE HAS PAID IN TEREST @15% AND INTEREST RECEIVED ON ADVANCES TO ITS SISTER-CONCERN @ 10%. T HE AO MADE ADDITION ON THE BASIS THAT THE ASSESSEE RECEIVED ONLY 10% OF IN TEREST, HOWEVER, PAID @15%, THEREBY THE PAYMENT OF INTEREST @15% WAS EXCESSIVE. IT IS ALSO RECORDED BY THE AO THAT THE PAYMENT OF INTEREST WAS NOT FOR THE COMMERCIAL EXPEDIENCY. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL) (P) LTD.(SUPRA), HAS HELD THAT THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT WAS ALSO NOT IN A POSITION TO POINT OUT H OW THE ASSESSEE EVADED PAYMENT OF TAX BY ALLEGED PAYMENT OF HIGHER COMMISS ION TO ITS SISTER-CONCERN SINCE THE SISTER-CONCERN WAS ALSO PAYING TAX AT HIG HER RATE AND COPIES OF THE ASSESSMENT ORDERS OF THE SISTER-CONCERN WERE TAKEN ON RECORD BY THE TRIBUNAL. IN THE INSTANT CASE, THE CONTENTION OF THE LD.COUNS EL FOR THE ASSESSEE IS THAT THERE IS NO EVASION OF TAX, THE RECIPIENTS OF THE INTERES T ARE TAXED AT HIGHER RATE. AS PER CBDT CIRCULAR NO.6-P DATED 06/07/1968, IT IS EN VISAGED THAT WHERE PAYMENT FOR ANY EXPENDITURE IS FOUND TO HAVE BEEN M ADE TO A RELATIVE OR ASSOCIATE-CONCERN FALLING WITHIN THE SPECIFIED CATE GORIES, IT WILL BE NECESSARY FOR THE INCOME-TAX OFFICER TO SCRUTINIZE THE REASON ABLENESS OF THE EXPENDITURE WITH REFERENCE TO THE CRITERIA MENTIONED IN THE SEC TION. THE INCOME-TAX OFFICER IS EXPECTED TO EXERCISE HIS JUDGEMENT IN A REASONAB LE AND FAIR MANNER. IT SHOULD BE BORNE IN MIND THAT THE PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELAT IVES AND ASSOCIATE- CONCERNS AND SHOULD NOT BE APPLIED IN A MANNER WHIC H WILL CAUSE HARDSHIP IN BONA FIDE CASES. THE AO HAS NOT GIVEN ANY FINDING AS TO HOW THESE EXPENSES ARE UNREASONABLE AND EXCESSIVE AND HOW THIS PAYMENT HAS RESULTED INTO EVASION OF TAX. THEREFORE, RESPECTFULLY FOLLOWING THE DECI SION OF HONBLE BOMBAY ITA NO.3215/AHD /2010 M/S. AKSHAR FINANCE LTD. VS. ITO ASST.YEAR 2006-07 - 5 - HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERVIC ES (TRAVEL) (P) LTD.(SUPRA), WE DIRECT THE AO TO DELETE THE ADDITION. THUS, GRO UNDS OF ASSESSEES APPEAL ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) ( ) '# ( T.R. MEENA ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 05/12/2013 ..&, .&../ T.C. NAIR, SR. PS '4 0 -7 8'7( '4 0 -7 8'7( '4 0 -7 8'7( '4 0 -7 8'7(/ COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-VI, AHMEDABAD 5. 7: -& , , / DR, ITAT, AHMEDABAD 6. :;' <1 / GUARD FILE. '4& '4& '4& '4& / BY ORDER, .7 - //TRUE COPY// = == =/ // / * * * * ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 3.12.13(DICTATION-PAD 7-PAGE S ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 4.12.13 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFOR E OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.5.12.13 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 5.12.13 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER