RELIABLE RAINWEAR (FIRM), MUMBAI V. THE ASSESSING OFFICER WARD 19(3)1, , MUMBAI

ITA 41/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8852 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 03-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Assessee Lawyers: RAMESH K CHHEDA
• Section: 143(3); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO.41/MUM/2019 ( ASSESSMENT YEAR: 2015-16) RELIABLE RAINWEAR (FIRM), 5 TH FLOOR, MAHAVIR BUILDING, GRANTROAD CROSS LANE, GRANT ROAD (E), MUMBAI-400007 VS. ASSESSING OFFICER, WARD 19(3)(1), MUMBAI, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007. PAN/GIR NO.AACFR 2352 L (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI RAMESH K CHHEDA (AR) REVENUE BY SHRI AKHTAR H ANSARI (DR) DATE OF HEARING 13/01/2020 DATE OF PRONOUNCEMENT 13/01/2020 / O R D E R PER: R.C. SHARMA, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28/09/2018 OF LD. CIT(A)-30, MUMBAI FOR THE A.Y. 20 15-16 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1 961 (IN SHORT, THE ACT). 2. IN THIS APPEAL, THE ASSESSEE IS BASICALLY AGGRIE VED FOR THE DISALLOWANCE OF INTEREST PAID ON THE UNSECURED LOAN S @ 18% ON THE PLEA THAT THE INTEREST PAID BY THE ASSESSEE TO THE BANK WAS 13.5%, ACCORDINGLY, BY INVOKING PROVISIONS OF SECTION 40A( 2)(B) OF THE ACT ITA NO. 41/MUM/2019 RELIABLE RAINWEAR (FIRM) VS A.O. 2 ADDITION WAS MADE BY THE A.O., WHICH WAS CONFIRMED BY THE LD. CIT(A), AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEF ORE THE ITAT. 3. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND CARE FULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECOR D I FOUND THAT THE ASSESSEE HAD PAID TOTAL INTEREST OF RS. 35,23,044/- ON UNSECURED LOANS OUT OF WHICH SUM OF RS. 34,90,249/- HAS BEEN PAID T O THE FAMILY MEMBERS OF THE PARTNERS OF THE FIRM. THE SAME IS PA ID @ 1.5% P.M. (18% P.A.) (AT ANNUAL REST) ON ACTUAL BALANCE IN TH E LOAN ACCOUNT ON DAY TO DAY BASIS. THE A.O. DISALLOWED IMPUGNED INTEREST PAID IN EXCESS OF 12% P.A. AMOUNTING TO RS. 11,63,416/-. THE ASSESSEE VIDE ITS LETTER DATED 08/11/2017 [ITEM 8(II)] FILED WITH THE A.O. O N 09/11/2017 AND LETTER DATED 15/11/2017 [ITEM 6] FILED WITH THE A.O . ON 15/11/2017 SUBMITTED DETAILED EXPLANATION JUSTIFYING THE REASO NABLENESS OF THE RATE OF INTEREST AT 18% P.A. THE A.O. OBSERVED THAT THE RATE OF INTEREST @ 1.5% P.M. IS TOO MUCH IN THE CONTEXT OF PRESENT BAN K INTEREST RATE AND PREVAILING MARKET RATE (WITHOUT GIVING ANY SPECIFIC INSTANCE). FURTHER, HE DISREGARDED THE TERMS, CONDITIONS, CIRCUMSTANCES ET C. ASSOCIATED WITH THE CASH CREDIT FACILITY AVAILED BY THE ASSESSEE AN D INTEREST PAID ON THE SAME TO THE COSMOS CO. OP BANK LTD. BY STATING THAT COMPARISON CANNOT BE MADE WITH CO.OP BANK (BY IGNORING THE FA CT THAT CO.OP BANKS ARE EQUALLY GOVERNED BY RBO AND OTHER LAWS AS APPLICABLE TO ITA NO. 41/MUM/2019 RELIABLE RAINWEAR (FIRM) VS A.O. 3 NATIONALIZED BANKS). THE COSMOS CO.OP BANK LTD. STA TED THAT MARGINAL RATE AT WHICH PAYEE OF INTEREST I.E. LENDER OF UNSE CURED LOAN PAYS INCOME TAX ON INCOME (INCLUDING INTEREST RECEIVED FROM THE ASSESSEE) HAS NO CONNECTION WITH THE RATE OF INTEREST PAID BY THE AS SESSEE (IN FACT WHILE CONSIDERING JUSTIFICATION U/S 40A(2), THE RATE AT W HICH THE PAYER OF INTEREST SAVES THE TAX ON ALLOWABLE EXPENDITURE, TH E MARGINAL RATE AT WHICH THE PAYEE PAYS INCOME TAX ON SUCH RECEIPTS OF INCOME, IS OF PRIME IMPORTANCE. 4. I ALSO OBSERVE THAT THE TERMS AND CONDITIONS ON WHICH THE BANK PROVIDES LOAN ARE VERY STRINGENT WHEREIN THE ASSESS EE IS ALSO REQUIRED TO PROVIDE COLLATERAL SECURITY OF IMMOVABLE PROPERTY, ALSO TO COMPLY SO MANY OTHER TERMS AND CONDITIONS AND INCUR FURTHER E XPENDITURE FOR INSURANCE, INSPECTION BY THE BANK OFFICERS ETC.. HO WEVER, NO SUCH CONDITIONS ARE BEING THERE IN CASE OF PRIVATE BORRO WINGS FROM FRIENDS AND RELATIVES WHICH ARE NOT TO BE SECURED BY ANY IMMOVA BLE PROPERTY BY MORTGAGING THE SAME. TAKING INTO CONSIDERATION, THE TERMS AND CONDITIONS ON WHICH PRIVATE BORROWING HAS BEEN TAKE N BY THE ASSESSEE VIS A VIS BORROWING FROM THE BANK, I DO NOT FIND AN Y JUSTIFICATION IN DISALLOWING THE PART OF INTEREST PAID ON PRIVATE BO RROWING WHICH ARE COMPARATIVELY ON EASIER TERMS. ACCORDINGLY, THERE I S NO JUSTIFICATION FOR DISALLOWANCE OF PART OF INTEREST. ITA NO. 41/MUM/2019 RELIABLE RAINWEAR (FIRM) VS A.O. 4 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY, 2020. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 13/01/2020 *RANJAN COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//