Lancer Laser Tech Limited, Ahmedabad V. The ACIT.,(OSD)-1,Range-4, Ahmedabad

ITA 3493/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67611 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 30-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEM BER LANCER LASER TECH LIMITED, 17-B, KAMALDEEP INDUSTRIAL ESTATE, KHATRAJ, AHMEDABAD PAN: AAACL8061F (APPELLANT) VS ACIT (OSD)-1 RANGE-4 AHMEDABAD (RESPONDENT) REVENUE BY: SRI P.L. KUREEL, SR.D.R. ASSESSEE BY: NONE DATE OF HEARING : 13-08-2013 DATE OF PRONOUNCEMENT : 23-08-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XX AHMEDABAD DATED 22-01-2009. ITA NO.3493/AHD/2010 ASSESSMENT YEAR 2006-07 I.T.A NO.3493/AHD/2010 A.Y. 2006-07 PAGE NO LANCER LASER TECH LTD VS. ACIT(OSD) 2 2. AT THE TIME OF HEARING NONE APPEARED ON BEHALF O F THE ASSESSEE DESPITE THE FACT THAT NOTICE FOR TODAYS HEARING WAS SENT O N THE ADDRESS AVAILABLE IN OUR RECORD. 3. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPE AL:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANTS CASE, THE HONOURABLE COMMISSIONER OF INCOME TAX (A) HAS GROSSLY ERRED IN PASSING THE APPELLATE ORDER. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE HONORABLE COMMISSIONER OF INCOME TAX (A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OUT OF INTEREST EX PENSES OF RS. 218848 U/S 40 A (2) (B) OF THE INCOME TAX ACT. 4. THE AO BY MAKING DISALLOWANCE U/S 40A(2)(B) OF T HE ACT HAS OBSERVED AS UNDER:- 6.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMITTED DETAILS OF INTEREST EXPENDITURE. ON PERUS AL OF THESE DETAILS IT WAS OBSERVED THAT INTEREST PAYMENT HAS BEEN MADE TO RELATED PARTIES (WITHIN THE OF SECTION 40A(2)(B)) AT A RATE OF 18% VIDE ORDER SHEET ENTRY 01-12-2008 THE ASSESSES WAS ASKED TO GIVE JUS TIFICATION FOR THE SAME. THE SUBMISSION OF THE ASSESSEE IN REGARD DAT ED 11.12.2008 IS REPRODUCED HERE: 'WITH REFERENCE TO PAYMENT OF INTEREST OF 18% TO AS SOCIATES AND RELATIVES, WE HAVE TO SUBMIT THAT FUND REQUIREMENT IS THE PRIME NECESSITY OF THE BUSINESS AND WHEN THE COMPANY REQUIRES THE FUND FOR BUSINESS AT THAT TIME UNSECURED LOANS FROM RELATIVE S WERE MADE AVAILABLE DURING THE COURSE OF BUSINESS. THE UNSECU RED LOANS ARE MADE AVAILABLE WITHOUT SECURITY AND ANY TERMS AND C ONDITIONS. THE COMPANY HAD TRIED ITS LEVEL BEST TO GET THE FUNDS F ROM BANKS AT MAXIMUM LEVEL TO SAVE THE INTEREST COST AND THERE A FTER LOANS FROM OTHERS WERE OBTAINED I.T.A NO.3493/AHD/2010 A.Y. 2006-07 PAGE NO LANCER LASER TECH LTD VS. ACIT(OSD) 3 WITHOUT PREJUDICE IT IS SUBMITTED THAT BANK ARE CHA RGING INTEREST @ 13.75% AND WITH SECURITY COVERAGE. IN VIEW OF THE ABOVE IT IS SUBMITTED THAT INTEREST PAID TO RELATIVES ARE REASONABLE, NOT EXCESSIVE, DURING THE COURSE OF BUS INESS, NON- COMPARABLE AT PREVAILING MARKET RATE AND CONDITION AND EXCLUSIVELY FOR BUSINESS PURPOSE. IN VIEW OF THE ABOVE IT IS ALLOWABLE FULLY. THE SUBMISSION OF THE ASSESSEE AND THE DETAILS AVAI LABLE ON RECORD DO NOT FULLY JUSTIFY PAYMENT OF INTEREST AT 18%, ON TH E BASIS OF MATERIAL AVAILABLE ON RECORD, SUBMISSIONS OF THE ASSESSES AN D THE INFORMATION RELATED TO PREVAILING RATES IN THE RELEVANT FINANCI AL YEAR IN RESPECT OF SECURED AND UNSECURED LOANS, FAIR MARKET COST OF BO RROWING IS ESTIMATED AT 12% PER ANNUM ACCORDINGLY, INTEREST PA YMENT IN EXCESS OF 12% IS HELD TO BE UNREASONABLE. THE AMOUNT OF I NTEREST PAID IN EXCESS OF 12% WORKS OUT TO RS.2,18,848/. ACCORDINGL Y, INTEREST PAYMENT OF RS.2,18,848/- IS HEREBY DISALLOWED U/S 4 0A(2)(A) OF THE ACT.' 5. BEFORE LD. CIT(A), ASSESSEES CONTENTION WAS TH AT THE ASSESSEE HAS BORROWED FUNDS @ 18% PER ANNUM BECAUSE OF COMMERCIA L EXPEDIENCY. THE ASSESSEE HAS EXPLORED ALL OPPORTUNITIES TO OBTAIN F INANCE BY THE BANKS BUT THE BANKS AT THEIR OWN NORMS DID NOT EXTEND CREDIT TO T HE ASSESSEE. THE AMOUNT WAS UTILIZED BY THE COMPANY FOR BUSINESS PURPOSES. THE PERSONS TO WHOM PAYMENTS WERE MADE WERE NOT ONLY RELATIVES BUT ALSO BUSINESS ASSOCIATES, THEREFORE NO DISALLOWANCE OF INTEREST PAYMENT PAID SHOULD HAVE BEEN MADE BY AO U/S 40A(2)(B) OF THE ACT. HOWEVER LD. CIT(A ) CONFIRMED THE ACTION OF THE AO. 6. AFTER HEARING LD. DR AND PERUSING THE RECORD, WE FIND THAT ASSESSING OFFICER HAS MADE DISALLOWANCE OF INTEREST PAYMENT O F RS. 2,18,848/- U/S I.T.A NO.3493/AHD/2010 A.Y. 2006-07 PAGE NO LANCER LASER TECH LTD VS. ACIT(OSD) 4 40A(2)(B) OF THE ACT BY TREATING INTEREST PAYMENT @ 18% TO BE UNREASONABLE IGNORING THE SUBMISSION OF THE ASSESSEE THAT DURING THE YEAR UNDER APPEAL BANKS WERE CHARGING INTEREST @ 13.7% WITH SECURITY COVERAGE WHICH HE COULD NOT ARRANGE, THEREFORE ASSESSEE HAD TO TAKE T HESE LOANS @ 18% FROM THESE PARTIES. UNDER SIMILAR CIRCUMSTANCES, THIS BENCH OF THE TRIBUNAL HAS TAKEN VIEW THAT INTEREST PAYMENT @ 18% IS NOT UNREA SONABLE AND SUCH PAYMENT CANNOT BE DISALLOWED BY INVOKING THE PROVIS IONS OF SECTION 40A(2)(B) OF THE ACT, THEREFORE DISALLOWANCE MADE B Y AO AND SUSTAINED BY LD. CIT(A) IS HEREBY DELETED. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 23/08/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,