Shri Ashok Kumar, Mandi Gobindgarh V. ITO, Mandi Gobindgarh

ITA 333/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5424 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 30-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH SMC, CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.333 /CHD/2011 (ASSESSMENT YEAR : 2007-08) SHRI ASHOK KUMAR, VS. THE INCOME-TAX OFFICER, PROP.ASHOK KUMAR NARINDER KUMAR WARD -2, LOHA BAZAR, MANDI GOBINDGARH. MANDI GOBINDGARH. PAN: AENPG7207A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SMT.JAISHREE SHARMA, DR O R D E R THE APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A), DATED 20.1.2011 RELATING TO ASSE SSMENT YEAR 2007-08 AGAINST THE ORDER PASSED U/S 143(3) OF THE INCOME-T AX ACT. 2. THE GROUND NOS.1 & 2 RAISED BY THE ASSESSEE READ AS UNDER : 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING H E ADDITION OF RS.1,87,400/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST PAID TO THE SPECIFIED PERSONS U/S 40A(2)(A) ESPECIALLY WHEN THE SAME RATE OF INTEREST PAID HAS BEEN ACCEPTED IN THE EARLIER YEARS WHICH IS ARBITRARY AND UNJUSTIFIED. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS BRUSHED ASIDE THE EXPLANATION RENDERED IN THIS REGARD WITHOUT ANY COGENT REASONING WHICH IS ARBITRARY & UNJUSTIFIED. 2 3. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD PAID INTEREST TO SPECI FIED PERSONS UNDER SECTION 40A(2)(A) OF THE INCOME-TAX ACT. THE ASSE SSING OFFICER ON PERUSAL OF S.NO.18 OF THE AUDIT REPORT IN FORM 3CD NOTED THAT AS PER ANNEXURE-B THE PAYMENTS WERE MADE ON ACCOUNT OF INT EREST TO THE SPECIFIED PERSONS UNDER SECTION 40A(2)(B) OF THE AC T AS TABULATED AT PAGE-2 OF THE ASSESSMENT ORDER. THE INTEREST WAS P AID TO THE SAID PERSONS @ 15% & 18%. THE ASSESSEE WAS REQUISITION ED TO JUSTIFY THE RATE OF INTEREST PAID TO THE PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE EXPLANATION OF THE ASSESSEE IN THIS R EGARD WAS THAT THE SAID RATE OF INTEREST PAID WAS REASONABLE AS THE LOANS R AISED WERE WITHOUT ANY MORTGAGE. THE FUNDS WERE CLAIMED TO HAVE BEEN UTIL IZED FOR THE PURPOSES OF BUSINESS AND HENCE THE INTEREST PAID WA S CLAIMED TO BE ALLOWABLE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD RECEIVED INTEREST FROM ONE M/S SURESH CHAND RAVINDE R KUMAR @ 12%. ACCORDINGLY, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ALLOWANCE OF INTEREST TO SPECIFIED PERSONS AT THE RATE EXCEEDING 12% WAS UNREASONABLE UNDER SECTION 40A(2)(A) OF THE ACT. ACCORDINGLY, A N ADDITION OF RS.1,87,400/- WAS MADE BY THE ASSESSING OFFICER. THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT CERTAIN PERSONS COVERED IN THE LIST AS SPECIFIED PERSONS UNDER SECT ION 40A(2)(B) OF THE ACT, WAS NOT CORRECT. THE LEARNED A.R. IN THE WRIT TEN SUBMISSIONS FILED BEFORE THE CIT(A) POINTED OUT THAT IN THE LIST INCO RPORATED AT PAGE-2 OF THE ASSESSMENT ORDER OF THE PERSONS COVERED UNDER S ECTION 40A(2)(B) OF THE ACT, ONLY SIX PERSONS WERE SO-COVERED AND FIVE PERSONS WERE NOT SO- COVERED. THE INTEREST WAS PAID TO THE PERSONS NOT COVERED UNDER SECTION 40A(2)(B) @15% AND ONLY TO ONE @ 18%. WHEREAS IN R ESPECT OF OTHER 3 PERSONS COVERED UNDER SECTION 40A(2)(B) INTEREST WA S PAID @ 15% TO TWO PERSONS AND @ 18% TO FOUR PERSONS. THE LEARNED A.R . FOR THE ASSESSEE POINTED OUT THAT SIMILAR PAYMENT OF INTEREST @ 18% WAS ALLOWED IN THE EARLIER YEAR BY THE ASSESSING OFFICER. FURTHER REL IANCE WAS PLACED ON THE ORDERS OF THE TRIBUNAL UNDER WHICH THE INTEREST RAT E OF 18% WAS HELD AS ALLOWABLE TO THE SPECIFIED PERSONS COVERED UNDER SE CTION 40A(2)(B) OF THE ACT. IT WAS FURTHER POINTED OUT THAT ACCUMULAT ED RATE OF INTEREST ON LOANS RAISED FROM THE BANK WAS 16%. 5. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THA T THERE IS NO MERIT IN THE PLEA OF THE ASSESSEE AS IT WAS CHARGING INTE REST @ 12% ON THE LOANS ADVANCED BY IT, WHEREAS IT WAS PAYING INTERES T @ 15% OR 18% ON THE LOANS RAISED BY IT. FURTHER THE CLAIM OF THE A SSESSEE WHETHER SUCH PERSONS ARE COVERED OR NOT COVERED UNDER SECTION 40 A(2)(B) OF THE ACT NEEDS TO BE VERIFIED. 6. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. UNDER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT IT I S PROVIDED THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF W HICH THE PAYMENT IS BEING MADE TO PERSONS SPECIFIED IN SUB-SECTION(B), WHERE THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS, THEN SO MUCH OF THE EXPENDITURE AS IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. 7. IN THE FACTS OF THE PRESENT CASE, ADMITTEDLY, TH E ASSESSEE HAD MADE PAYMENTS OF INTEREST ON LOANS RAISED FROM CERTAIN S PECIFIED PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE AS SESSING OFFICER POINTED OUT THAT THE SAID LIST IS AS PER THE ANNEXU RE TO THE AUDIT REPORT, 4 WHEREAS THE ASSESSEE IN THE WRITTEN SUBMISSIONS FIL ED BEFORE THE CIT(A) HAS CLAIMED THAT SOME OF THE PERSONS IN THE SAID LI ST ARE NOT SPECIFIED PERSONS UNDER SECTION 40A(2)(B) OF THE ACT. BE THA T AS MAY BE, THE QUESTION WHICH ARISES IN THE PRESENT APPEAL IS IN R ESPECT OF THE RATE OF INTEREST PAID BY THE ASSESSEE ON SUCH LOANS RAISED BY IT. ADMITTEDLY, THE ASSESSEE ON THE LOANS ADVANCED BY IT WAS CHARGING I NTEREST @ 12%, WHEREAS ON THE LOANS RAISED BY IT WAS PAYING INTERE ST @ 15% OR 18%. TO SOME OF THE PARTIES THE INTEREST IS PAID @ 15% A ND TO SOME OF THE PARTIES THE INTEREST IS PAID @ 18%. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE BEFORE US WHERE T HE ASSESSEE ITSELF IS PAYING A LOWER RATE OF INTEREST ON THE LOANS RAISED BY IT, I FIND NO JUSTIFICATION IN THE CLAIM OF THE ASSESSEE IN PAYIN G INTEREST @ 18% TO THE SPECIFIED PERSONS COVERED UNDER SECTION 40A(2)(B) O F THE ACT. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO REST RICT THE ALLOWANCE OF INTEREST TO THE EXTENT OF 15%. THE RATE OF INTERE ST APPLIED IN THE EARLIER YEAR CAN BE A GUIDING FACTOR BUT CANNOT BE THE DETE RMINING FACTOR FOR THE ALLOWANCE OF EXPENDITURE IN THE SUCCEEDING YEAR. F URTHER RELIANCE PLACED BY THE LEARNED A.R. FOR THE ASSESSEE ON THE DECISIO N OF THE CHANDIGARH BENCH OF THE TRIBUNAL IS MISPLACED AS IN THE FACTS OF THE CASE BEFORE THE TRIBUNAL CONSISTENT RATE OF INTEREST OF 18% WAS PAI D WHICH WAS FOUND TO BE ALLOWABLE IN THE HANDS OF THE ASSESSEE. HOWEVER , IN THE INSTANT CASE BEFORE US, THE ASSESSEE HIMSELF HAS PAID VARYING RA TE OF INTEREST I.E. 15% AND 18% AND RECEIVED INTEREST @ 12% FROM THE ADVANC ES MADE BY IT. IN VIEW THEREOF I DIRECT THE ASSESSING OFFICER TO ALLO W THE CLAIM OF THE ASSESSEE TO THE EXTENT OF INTEREST @ 15%. THE GROU ND NOS.1 & 2 OF APPEAL RAISED BY THE ASSESSEE ARE THUS PARTLY ALLOW ED. 8. GROUND NO.3 IS AS UNDER : 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS FURTHER ERRED IN SUSTAINING AN ADDITION OF 5 RS.55,000/- ON ACCOUNT OF ALLEGED LOW HOUSEHOLD WITHDRAWALS WHICH IS ARBITRARY AND UNJUSTIFIED. 9. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT THE TOTAL HOUSEHOLD WITHDRAWALS MADE BY THE ASSESSEE WERE RS. 41,000/- AND THE FAMILY OF THE ASSESSEE CONSISTED OF WIFE AND TWO CH ILDREN. THE ASSESSING OFFICER HAD ESTIMATED EXPENDITURE @ RS.10 ,000/- PER MONTH AND THE CIT(A) HAD RESTRICTED THE SAME TO RS.8000/- PER MONTH AND ACCORDINGLY, AN ADDITION OF RS.55,000/-. 10. THE LEARNED D.R. FOR THE REVENUE POINTED OUT TH AT THE ASSESSEE HAD GROWN-UP CHILDREN AND ONE SON WAS STUDYING IN CLASS -VII AND DAUGHTER HAS COMPLETED HER STUDIES AND CONSEQUENTLY THE WITH DRAWALS SHOWN BY THE ASSESSEE WERE ON THE LOWER SIDE. 11. IN THE FACTS OF THE PRESENT CASE THE TOTAL HOUS EHOLD WITHDRAWALS MADE BY THE ASSESSEE WERE RS.41,000/-. THE ASSESS EE HAD STATED BEFORE THE ASSESSING OFFICER THAT THE HOUSEHOLD EXPENSES W ERE NOT BEING SHARED BY ANY OTHER MEMBER OF THE FAMILY. THE ASSESSING O FFICER HAD MADE AN ESTIMATION OF THE HOUSEHOLD EXPENSES @ RS.10,000/- PER MONTH AND THE CIT(A) HAD RESTRICTED THE SAME TO RS.8000/- PER MON TH. I AM OF THE VIEW THAT THE ESTIMATE MADE BY THE REVENUE AUTHORITIES I S ON THE HIGHER SIDE. HENCE, I RESTRICT THE SAME TO RS.5000/- PER MONTH. THE GROUND NO.3 RAISED BY THE ASSESSEE IS THUS PARTLY ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF MAY, 2011. SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER DATED : 30 TH MAY, 2011 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 6