BHARAT FURNISHINGS TEXTORIUM, MUMBAI V. ACIT CIR 16(1), MUMBAI

ITA 3363/MUM/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4070 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 15-07-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 21-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI .. , !'# $ $ $ $ ! %, & !'# !' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M !./ I.T.A. NO. 3363 /MUM/2009 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2004-05) M/S BHARAT FURNISHING TEXTORIUM, MITESH MEHTA & ASSOCIATES, CHARTERED ACCOUNTANTS, 432, LAMINGTON ROAD, 2 ND FLOOR, OPERA HOUSE, ABOVE DENA BANK, MUMBAI 400 004. ) ) ) ) / VS. THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 16(1), MATRU MANDIR, TARDEO, MUMBAI 400 036. #+ !./ PAN : AAAFB 1734 C ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) +, / 0 ! / APPELLANT BY : SHRI MITESH MEHTA -.+, / 0 ! / RESPONDENT BY : SHRI O.P. SINGH !)$ / / // / DATE OF HEARING : 15-07-2013 12* / / DATE OF PRONOUNCEMENT : 19-07-13 '3 / O R D E R PER P.M. JAGTAP, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) XVI, MUMBAI DTD. 02-02-2009 AND THE SOLIT ARY ISSUE ARISING OUT OF THE SAME RELATES TO THE ADDITION OF RS. 3,42, 117/- MADE BY THE A.O. AND ITA 3363/MUM/2009 2 CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF DISALLOWA NCE OF INTEREST MADE U/S 40A(2)(A) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSH IP FIRM WHICH IS DEALING IN FURNISHINGS AND FABRICS AS WELL AS HOUSEHOLD LIN EN. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 01-11-2004 DECLARING TOTAL INCOME OF RS. 46,89,395/-. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAD PAID INTEREST @ 15% ON THE LOANS TAKEN FROM THE RELATED PERSONS AS AGAINST INT EREST @ 12% PAID TO THIRD PARTIES. KEEPING IN VIEW THE RATE OF INTEREST OF 1 2% PAID BY THE ASSESSEE TO THIRD PARTY AS WELL AS OTHER INSTANCES POINTED OUT BY HIM IN THE ASSESSMENT ORDER, THE A.O. HELD THAT THE PREVAILING MARKET RAT E OF INTEREST WAS 12% AND TREATED THE INTEREST PAID BY THE ASSESSEE TO THE RE LATED PERSONS @ 15% AS EXCESSIVE AND UNREASONABLE. ACCORDINGLY, SUCH EXCE SSIVE INTEREST PAID BY THE ASSESSEE @ 3% MORE WAS DISALLOWED BY HIM BY INVOKIN G THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT. 3. THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF INTEREST U/S 40A(2)(A) OF THE ACT WAS CHALLENGED BY THE ASSESSEE IN THE AP PEAL FILED BEFORE THE LD. CIT(A). IT WAS EXPLAINED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE LOANS FROM FAMILY MEMBERS WERE TAKEN FOR A LONG TERM WHILE THE LOANS TAKEN FROM THIRD PARTIES WERE PAYABLE ON DEMAND. I T WAS CONTENDED THAT THE RATE OF INTEREST IN THE CASE OF LONG TERM LOANS IS ALWAYS HIGHER THAN THE INTEREST PAID ON DEMAND LOANS. IT WAS CONTENDED TH AT THE INTEREST @ 15% ON LONG TERM LOANS TAKEN FROM THE RELATED PARTIES THUS WAS FAIR AND REASONABLE AND IT WAS NOT EXCESSIVE AS ALLEGED BY THE A.O. CAL LING FOR ANY DISALLOWANCE U/S 40A(2)(A) OF THE ACT. 4. THE LD. CIT(A) DID NOT FIND MERIT IN THE SUBMIS SIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND CONFIRMED THE DISALL OWANCE MADE BY THE A.O. ITA 3363/MUM/2009 3 U/S 40A(2)(A) OF THE ACT FOR THE FOLLOWING REASONS GIVEN IN PARA 6 OF HIS IMPUGNED ORDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. IT MAY BE TRUE THAT THE LOAN FROM FAMILY MEMBERS ARE IN THE N ATURE OF LONG TERM LOANS. BUT THERE IS NO BAR ON THE APPELLANT TO REPA Y THE LOANS AS AND WHEN IT DECIDES TO DO SO OR WHEN THE LENDERS DEMAND IT. THERE IS NO JUSTIFICATION TO PAY INTEREST AT A HIGHER RATE WHEN FUNDS ARE AVAILABLE AT LESSER RATE IN THE MARKET. APPELLANT INSTEAD OF STA TING IN GENERAL TERMS THAT THE LOANS FROM FAMILY MEMBERS ARE IN THE NATUR E OF LONG TERM LOANS, HAS NOT MADE OUT A CASE AS TO HWY IT HAS NEC ESSARILY TO DEPEND ON LOAN FROM FAMILY MEMBERS WHICH ARE COSTLIER THAN THE FUNDS AVAILABLE IN THE MARKET. THEREFORE, THE ACTION OF T HE A.O. IN DISALLOWING EXCESS OF INTEREST U/S.40A(2)(B) IS JUSTIFIABLE AND IS SUSTAINED AND APPEAL ON THIS GROUND IS DISMISSED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSE SSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED BEFORE THE US THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE WHILE THE LD. D.R. HAS STRONGLY RELIED ON THE ORDER S OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. AS PE R THE PROVISIONS OF SECTION 40A(2)(A), WHERE THE ASSESSEE INCURS ANY EXPENDITUR E IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY RELATED PE RSON AND THE A.O. IS OF THE OPINION THAT THE EXPENDITURE IS EXCESSIVE OR UN REASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE, SO MUCH OF THE EXPENDITURE AS IS S O CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED A S A DEDUCTION. IN THE PRESENT CASE, THE RATE OF INTEREST PREVAILING IN TH E MARKET WAS ESTABLISHED TO BE MAXIMUM 12% BY THE A.O. BY CITING VARIOUS INSTAN CES INCLUDING THE INSTANCE INVOLVING INTEREST RATE OF 12% PAID BY THE ASSESSEE TO THIRD PARTIES. THE BURDEN THAT LAY ON THE A.O. TO INVOKE THE PROVI SIONS OF SECTION 40A(2)(A) OF THE ACT THUS WAS DULY DISCHARGED BY HIM AND IT W AS FOR THE ASSESSEE TO ESTABLISH BY CITING COMPARABLE CASES TO SHOW THAT T HE INTEREST RATE OF 15% ITA 3363/MUM/2009 4 PAID BY IT TO THE RELATED PARTIES WAS FAIR AND REAS ONABLE AS PER THE PREVAILING MARKET CONDITION. THE ASSESSEE, HOWEVER, HAS FAILE D TO DO SO AND INSTEAD TRIED TO JUSTIFY THE HIGHER INTEREST PAID TO THE RE LATED PARTIES ON THE BASIS OF RE-PAYMENT PERIOD WITHOUT EVEN POINTING OUT WITH SU PPORTING INSTANCES THAT THE INTEREST RATE ON LONG TERM LOAN WAS 15% IN THE PREVAILING MARKET. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF INT EREST BY INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT AND UPHO LDING THE SAME, WE DISMISS THIS APPEAL FILED BY THE ASSESSEE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMI SSED. 4 5 &) %4 / 4 / 67 ORDER PRONOUNCED IN THE OPEN COURT ON 19-07-13. . '3 / 12* 8')5 19-07-13 2 / SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) & !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 8') DATED 19-07-13 $.&).!./ RK , SR. PS '3 / -&9: ;:* '3 / -&9: ;:* '3 / -&9: ;:* '3 / -&9: ;:*/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. < () / THE CIT(A)- XVI, MUMBAI 4. < / CIT XVI MUMBAI 5. :$? -&&) , , / DR, ITAT, MUMBAI I BENCH 6. @% A / GUARD FILE. '3)! '3)! '3)! '3)! / BY ORDER, !.: -& //TRUE COPY// B B B B/ // /!6 !6 !6 !6 ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI