Vinodkumar Ranglal Dhandharia, Ahmedabad V. ACIT, Circle-5(3), Ahmedabad

ITA 359/AHD/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9694 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 14-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: PF JAIN
• Keywords: Question of law; Commercial expediency
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.359/AHD/2018 (ASSESSMENT YEAR : 2014-15) VINODKUMAR RANGLAL DHANDHARIA, 110, NEW CLOTH MARKET, OUSIDE RAIPUR GATE, AHMEDABAD. VS. ACIT, CIR-5(3), AHMEDABAD. [PAN NO. ADUPD 8770 H] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI P. F. JAIN, A.R. RESPONDENT BY : SHRI S. K. DEV, SR. D.R. DATE OF HEARING 30/08/2018 DATE OF PRONOUNCEMENT 26/11/2018 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN FILED BEFORE US BY THE ASSESSEE AGAINST THE ORDER DATED 22.12.2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-5, AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (T HE ACT) ARISING OUT OF THE ORDER DATED 20.10.2016 FOR THE ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE HAS ASSAILED THE ORDER IMPUGNED ON TWO COUNTS; FIRSTLY, THE OBSERVATION MADE BY AUTHORITY BELOW THAT THE APPEAL IS NOT MAINTAINABLE SINCE THE ORDER OF ADDITION HAS BEEN MADE ON CONSENT GIVEN BY THE A SSESSEES REPRESENTATIVE, SECONDLY, THE UPHOLDING OF DISALLOWANCE U/S 40A(2)(B) TO THE TUNE OF RS.13,45,505/- OUT OF THE INTEREST PAYMENT TO RELATIVES RANGING FROM 18% TO 2 1% MADE BY THE LD CIT(A) WITHOUT APPRECIATING THE AUDIT REPORT AND THE FACT THAT THE SAME HAS BEEN CONSISTENTLY PAID BY THE ASSESSEE WHICH WAS DULY ALLOWED BY THE DEPARTMENT I S BAD IN LAW. - 2 - ITA NO.359/AHD/2018 VINODKUMAR R. DHANDHARIA VS. ACIT ASST.YEAR 2014-15 3. THE FACTS LEADING TO THE CASE IS THIS THAT THE A SSESSEE, AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF TRADING OF TEXTILE CLOTHES SINCE 01.07. 1987, HAS PAID INTEREST OF RS.35,72,537/- TO RELATIVES DEFINED U/S 40A(2)(B) OF THE ACT WITH THE RATE OF INTEREST VARIED FROM 18% TO 21%. THE ASSESSEE WAS ASKED TO JUSTIFY SUCH HIGH RA TE OF INTEREST BEING PAID TO FAMILY MEMBERS. ACCORDING TO THE ASSESSING OFFICER NO JUST IFICATION HAS BEEN FORWARDED BY THE ASSESSEE FOR SUCH HIGH RATE OF INTEREST BEING PAID SINCE THE PREVALENT RATE OF INTEREST IN MARKET DURING THE PERIOD VARIED BETWEEN 9% TO 12%. TAKING INTO CONSIDERATION THIS PARTICULAR ASPECT OF THE MATTER THE LEARNED ASSESSI NG OFFICER ALLOWED 12% RATE OF INTEREST AND THE INTEREST PAYMENT MADE OVER AND ABOVE 12% WA S DISALLOWED TO THE TUNE OF RS.13,45,505/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, THE LD. AO OBSERVED THAT SUCH ADDITION WAS MADE AFTER THE MATTER BEING DISCUSSED WITH THE REPRESENTATIVE OF THE ASSESSEE. THE ASSESSEE IN APPEAL JOINTS ISSUE ON THIS POINT BEFORE THE LD CIT(A). ACCORDING TO THE A SSESSEE NO SUCH CONSENT, WHATSOEVER, WAS GIVEN BY THE ASSESSEES REPRESENTATIVE TO THE L D. AO. HE FURTHER ADDED THAT LOOKING INTO THE COMMERCIAL EXPEDIENCY SUCH HIGH RATE OF IN TEREST WAS GIVEN ON THE UNSECURED LOAN TAKEN FROM THE FAMILY MEMBERS. HOWEVER, THE SA ID PLEA OF THE ASSESSEE WAS REJECTED BY THE LD CIT(A) AND HE THEN CONFIRMED THE ORDER OF ADDITION MADE BY THE LD AO REITERATING THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER. THE APPEAL HAS BEEN, IN FACT REJECTED BY THE LEARNED CIT(A) AS NOT MAINTAINABLE SINCE THE SAME HAS BEEN ALLEGED TO HAVE BEEN PREFERRED ON CONSENT ORDER. HENCE, THE I NSTANT APPEAL BEFORE US. 4. AT THE TIME OF HEARING OF THE APPEAL, THE LD REP RESENTATIVE OF THE ASSESSEE VEHEMENTLY ARGUED AGAINST THE OBSERVATION MADE BY T HE AUTHORITIES BELOW IN REGARD TO THE CONSENT GIVEN BY THE LD REPRESENTATIVE OF THE ASSES SEE FOR SUCH ADDITION MADE BY THE LD. ASSESSING OFFICER. HE FURTHER ADDED THAT FROM THE P ERUSAL OF THE ASSESSMENT ORDER NOTHING IS EVIDENT THAT THE REPRESENTATIVE OF THE ASSESSEE HAS EVER GIVEN CONSENT TO SUCH ADDITION BEFORE THE LD AO. MERE DISCUSSION, ACCORDING TO THE REPRESENTATIVE OF THE ASSESSEE, - 3 - ITA NO.359/AHD/2018 VINODKUMAR R. DHANDHARIA VS. ACIT ASST.YEAR 2014-15 CANNOT BE A CONSENT TO THE ORDER TO BE PASSED BY TH E REVENUE WHICH IS PREJUDICIAL TO THE INTEREST OF THE ASSESSEE. HE, THEREFORE, PRAYS FOR DELETION OF SUCH OBSERVATION MADE BY THE AO SO CONFIRMED BY THE LD CIT(A). ON MERIT, THE LD REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT LOOKING INTO THE COMMERCIA L EXPEDIENCY SUCH INTEREST FROM 18% TO 21% WAS PAID TO THE RELATIVE OF THE ASSESSEE ON UNSECURED LOAN. FURTHER THAT ORDER PASSED BY THE LD AO OBSERVING THAT THE INTEREST PAI D @18% TO 21% TO THE RELATIVE IS EXCESSIVE AND UNREASONABLE IS BAD IN LAW IN VIEW OF THE FACT THAT SUCH ADVANCE FROM THE RELATIVES IS FOR LONG TERM AND PARTICULARLY WHEN SA ID RATE OF INTEREST WAS ALLOWED BY THE REVENUE IN EARLIER YEARS. HE FURTHER RELIES UPON TH E JUDGMENT PASSED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL. IN THIS REGARD AND THE JUDG MENT PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT WHERE THE IDENTICAL ISSUE OF PAYING INTEREST @ 18 TO 21% PER ANNUM TO THE RELATIVES WAS ALLOWED, WAS ALSO RELIED UPON BY THE LEARNED REPRESENTATIVE OF THE ASSESSEE. 5. ON THE OTHER HAND, LD REPRESENTATIVE OF THE DEPA RTMENT RELIES ON THE ORDER PASSED BY THE LD ASSESSING OFFICER WHICH WAS CONFIRMED BY THE LD CIT(A). HE FURTHER RELIES UPON THE PARAGRAPH 5 OF THE ORDER PASSED BY THE AO. 6. WE HAVE HEARD THE RESPECTIVE PARTIES, PERUSED TH E RELEVANT MATERIALS AVAILABLE ON RECORD AND JUDGMENTS RELIED UPON BY THE LD REPRESEN TATIVE OF THE ASSESSEE. WE HAVE PERUSED THE ORDER PASSED BY THE LD ASSESSING OFFICE R PARTICULARLY PARAGRAPH 5 WHERE THE ASSESSING OFFICER HAS OBSERVED THAT AFTER DISCUSSIO N THE AR OF THE ASSESSEE AGREED FOR DISALLOWANCE OF EXCESS INTEREST THEREFORE THE SAID ADDITION HAS BEEN MADE UPON DISALLOWING THE HIGH RATE OF INTEREST. WE FIND NO S UCH DOCUMENT WHICH IS EVIDENT THAT THE ASSESSEES COUNSEL HAS EVER CONSENTED TO THE ORDER PASSED BY THE LD ASSESSING OFFICER WHICH IS PRACTICALLY PREJUDICIAL TO THE INTEREST OF THE ASSESSEE. MERE OBSERVATION THAT THE ASSESSEES REPRESENTATIVE HAS AGREED UPON DISCUSSIO N CANNOT MAKE THE ORDER AS CONSENT ORDER PASSED BY THE LD AO SACROSANCT PARTICULARLY WHEN THERE ARE NUMBER OF JUDGMENTS - 4 - ITA NO.359/AHD/2018 VINODKUMAR R. DHANDHARIA VS. ACIT ASST.YEAR 2014-15 AVAILABLE BEFORE THE ASSESSEES REPRESENTATIVE IN H IS SUPPORT WHICH THE ASSESSEE COULD HAVE RELIED UPON INSTEAD OF GOING CONSENT. NEITHER WE FIND ANY SELF OBSERVATION MADE BY THE LD CIT(A) THAT THE REPRESENTATIVE OF THE ASSESS EE HAS GIVEN CONSENT TO THE ORDER PASSED BY THE LD AO RATHER THE LEARNED CIT(A) OBSER VED THAT BY GIVING THE CONSENT TO MAKE ADDITIONS THE ASSESSEE STOPPED THE ASSESSING O FFICER TO MAKE ANY FURTHER ENQUIRY WHICH ACCORDING TO US IS OF NO BASIS. IN THE ABSENC E OF ANY COGENT DOCUMENTS TO THAT EFFECT WE CANNOT SUPPORT SUCH CONTENTION OF THE AUT HORITIES BELOW IN MAKING THE APPEAL NOT MAINTAINABLE IN ORDER TO JUSTIFY THEIR DISALLOW ANCE AND ADDITION MADE THEREOF. COMING TO THE MERIT OF THE MATTER, WE FIND THAT THE ASSESS EE HAS PAID INTEREST @ 18% TO 21% TO THE RELATIVES ON UNSECURED LOAN. AS A PRUDENT BUSINESSM AN, THE APPELLANT IS DRIVERS SEAT TO CARRY ON HIS BUSINESS MORE PROFITABLY EVEN BY BORRO WING THE MONEY @ 18% TO 21% BECAUSE HIS MARGIN OF PROFIT IS SUBSTANTIALLY HIGH. THE DEPARTMENT CANNOT ENTER INTO THE SHOES OF THE BUSINESS MAN TO DECIDE WHETHER THE RAT E OF INTEREST APPLIED BY THE APPELLANT IS REASONABLE OR NOT, BECAUSE OF THE PARTICULAR REA SON THAT THE ASSESSING OFFICER IS NOT CONVERSANT WITH THE TRADE PRACTICE PREVALENT IN THE LINE OF CLOTH TRADING CARRIED ON BY THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE JUDGMENT PA SSED BY THE LD REPRESENTATIVE OF THE ASSESSEE, IN THIS REGARD THE CO-ORDINATE BENCH IN ITA NO.901/AHD/2010 FOR ASST. YEAR 2006-07 DEALT WITH THE IDENTICAL SITUATION AND ALLOWED THE APPEAL PREFERRED BY THE ASSESSEE IN HIS FAVOUR WITH THE FOLLOWING OBSERVATI ON: IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT IN THE IMMEDIATELY PRECEDING YEAR, THE INTEREST PAID TO THE RELATIVES AT THE RATE OF 18% W AS DULY ALLOWED BY THE ASSESSING OFFICER. ON THE OTHER HAND, IT WAS POINTED OUT BY T HE LEARNED DR THAT SINCE THE ASSESSEE PAID INTEREST TO THE OTHER PERSONS RANGING BETWEEN 12% TO 15%, THE INTEREST PAID TO THE RELATIVES AT THE RATE OF 18% WAS CERTAINLY EXCESSIV E OR UNREASONABLE. IN THE REJOINDER, IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ADVAN CE FROM THE RELATIVE IS FOR THE LONG TERM WHILE THE ADVANCES FROM OTHER PERSONS WAS FOR RELATIVELY SHORTER PERIOD. HE REITERATED THAT THE PAYMENT OF INTEREST AT THE RATE OF 18% FOR UNSECURED LOAN IS NEITHER UNREASONABLE NOR EXCESSIVE. 4. WE HAVE HEARD BOTH T HE PARTIES AND PERUSED MATERIAL PLACED BEFORE US. FROM THE ABOVE DECISIONS OF THE I TAT IT IS EVIDENT THAT THE ITAT HELD THE INTEREST VARYING BETWEEN 15% TO 24% PER ANNUM T O BE REASONABLE. THEREFORE, THE INTEREST PAID AT THE RATE OF 18% PER ANNUM BY THE A SSESSEE TO THE RELATIVES CANNOT BE SAID TO BE UNREASONABLE OR EXCESSIVE. MOREOVER, THE AO H IMSELF HAS ACCEPTED THE INTEREST AT THE RATE OF 18% TO BE REASONABLE IN THE IMMEDIATELY PRECEDING YEAR, THEREFORE, THE SAME - 5 - ITA NO.359/AHD/2018 VINODKUMAR R. DHANDHARIA VS. ACIT ASST.YEAR 2014-15 RATE OF INTEREST CANNOT BE BECOME EXCESSIVE IN THE SUBSEQUENT YEAR. IN VIEW OF THE ABOVE, WE DELETE THE DISALLOWANCE OF RS.1,31,682/- MADE BY THE AO UNDER SECTION 40(A)(2)(B). ACCORDINGLY THE GROUND NO.1 OF THE ASSESSEES APPEA L IS ALLOWED. 5. GROUND NO.2 OF THE ASSESSEES APPEAL IS AGAINST THE CHARGING OF INTERE ST UNDER SECTION 234B OF THE ACT. BOTH THE PARTIES AGREED THAT IT IS CONSEQUENTIAL, WE THE REFORE DIRECT THE ASSESSING OFFICER TO RECALCULATE THE INTEREST, IF ANY, AFTER DETERMINATI ON OF THE INCOME AS PER OUR ABOVE ORDER. 6. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. FURTHER THAT THE JUDGMENT PRONOUNCED IN THE TAX APP EAL NO. 262/2017 BY THE JURISDICTIONAL HIGH COURT UPHELD THE ISSUE IN FAVOU R OF THE ASSESSEE HAS RELIED UPON BY THE LD AR IN SUPPORT OF HIS ARGUMENT. THE RELEVANT PORT ION OF THE SAID JUDGMENT IS REPRODUCED HEREIN BELOW: [5.0] NOW SO FAR AS PROPOSED QUESTION NO.(A) IS CO NCERNED, AT THE OUTSET, IT IS REQUIRED TO BE NOTED THAT THE RESPONDENT ASSESSEE PAID THE INTEREST AT THE RATE OF 15% AND CLAIMED THE DEDUCTION TOWARDS THE INTEREST EXPENDIT URE. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT CONSIDERING THE BANK INTERE ST PREVAILING AT THE RELEVANT TIME THE RESPONDENT - ASSESSEE OUGHT TO HAVE PAID THE INTERE ST AT THE RATE OF 12.5%, AND THEREFORE, THE ASSESSING OFFICER MADE' THE ADDITION OF RS.3,00 ,544/- FOR THE EXCESS PAYMENT OF INTEREST EXPENDITURE. THE AFORESAID ADDITION CAME T O BE CONFIRMED BY THE LEARNED CIT(A). HOWEVER, THE LEARNED TRIBUNAL BY THE IMPUGNED JUDGM ENT AND ORDER HAS DIRECTED TO DELETE THE ADDITION OF RS.3,00,544/- BEING EXCESS A MOUNT OF INTEREST EXPENDITURE OBSERVING THAT IT WAS COMMERCIAL EXPEDIENCY OF THE RESPONDENT- ASSESSEE, WHICH IS REQUIRED TO BE CONSIDERED AND EVEN THE INTEREST PAI D BY THE RESPONDENT - ASSESSEE AT 15% AGAINST 12.5% AS CLAIMED BY THE ASSESSING OFFICER C ANNOT BE SAID TO BE ON HIGHER SIDE, AND THEREFORE, THE LEARNED TRIBUNAL DELETED THE ADD ITION OF RS.3,00,544/-. [6.0] HAVING HEARD SHRI K.M. PARIKH, LEARNED ADVOC ATE APPEARING ON BEHALF OF THE REVENUE AND THE REASONING GIVEN BY THE LEARNED TRIB UNAL AND MORE PARTICULARLY CONSIDERING THE FACT THAT THE RESPONDENT ASSESSEE P AID THE INTEREST AT THE RATE OF 15% AND THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A SSESSEE OUGHT TO HAVE PAID THE INTEREST AT THE RATE OF 12.5% AND AS OBSERVED BY THE LEARNED TRIBUNAL THE RESPONDENT -ASSESSEE PAID THE INTEREST AT THE RATE OF 15% LOOKING TO THE COMMERCIAL EXPEDIENCY, IT CANNOT BE SAID THAT THE LEARNED TRIBUNAL HAD COMMITTED ANY ER ROR IN DELETING THE ADDITION OF RS.3,00,554/-. WE ARE COMPLETE AGREEMENT WITH THE V IEW TAKEN BY THE LEARNED TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW ARISES AS SOUGHT TO BE PROPOSED BY THE REVENUE. IN VIEW OF THE ABOVE AND FOR THE REASONS STATED HEREINABOVE, T HE PRESENT TAX APPEAL DESERVES TO BE DISMISSED AND IS ACCORDINGLY DISMISSED.' 7. WE FIND THAT IN BOTH THE JUDGMENTS THE EXCESS AM OUNT OF INTEREST EXPENDITURE WAS ALLOWED TAKING INTO CONSIDERATION THE COMMERCIAL EX PEDIENCY OF THE ASSESSEE AND SAID - 6 - ITA NO.359/AHD/2018 VINODKUMAR R. DHANDHARIA VS. ACIT ASST.YEAR 2014-15 WAS HELD NOT TO BE ON HIGHER SIDE. WE, THEREFORE, C AN CONCLUDE THAT THE RATE OF INTEREST RANGING FROM 18% TO 21% PER ANNUM IS NOT EXCESSIVE OR UNREASONABLE. IN FACT, THE JURISDICTIONAL HIGH COURT UPHELD THE ORDER PASSED B Y THE LD TRIBUNAL IN DELETING THE ADDITION MADE BY THE AUTHORITIES BELOW ONLY ON THE PREMISES THAT THE SAID RATE OF INTEREST WAS REQUIRED TO BE CONSIDERED IN VIEW OF THE COMMER CIAL EXPEDIENCY OF THE BUSINESS OF THE ASSESSEE. WE, THEREFORE, FIND NO REASON FOR SUC H DISALLOWANCE AS MADE BY THE LD AO AND RESULTANTLY THE ADDITION OF RS. 3,00,554/- WHIC H WAS SUBSEQUENTLY CONFIRMED BY THE FIRST APPELLANT AUTHORITY. IN VIEW OF OBSERVATION M ADE HEREIN ABOVE HIGHLY AND RESPECTFULLY RELY UPON THE JUDGMENT PASSED BY THE J URISDICTIONAL HIGH COURT, WE DELETE SUCH ADDITION MADE BY AUTHORITIES BELOW. 8. IN THE RESULT, THE ASSESSEES APPEAL IS HEREBY A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26/11/2018 SD/- SD/- ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 26/11/2018 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)-5, AHMEDABAD. 5. , ! ' , #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD