ITO, New Delhi V. M/s. Sport Station India Pvt. Ltd., New Delhi

ITA 4337/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6469 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 08-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: B K ANAND
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO. 4337 /DEL/201 4 & I.T.A. NO. 43 98 /DEL/2014 A.Y RS . : 20 1 1 - 1 2 & 2010 - 11 INCOME TAX OFFICER, WARD 9(2), ROOM NO. 236, CR BUILDING, IP ESTATE, NEW DELHI VS. M/S SPORT STATION INDIA PVT. LTD. (NOW MERGED WITH SSIPL LIFE STYLE (P) LTD.) B-1/F-4, MOHAN COOPERATIVE INDUSTRIAL AREA, MAIN MATHURA ROAD, NEW DELHI 110 044 (PAN: AADCS6357C) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) DEPARTMENT BY : SH. S.K. JAIN, SR. DR ASSESSEE BY : SH. B .K. ANAND, CA ORDER ORDER ORDER ORDER PER H.S. SIDHU: JM PER H.S. SIDHU: JM PER H.S. SIDHU: JM PER H.S. SIDHU: JM THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII, N EW DELHI BOTH DATED 30.5.2014 PERTAINING TO ASSESSMENT YEAR 2011-12 & 2010-11 RESPECTIVELY. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON AND IDENTICAL, HENCE, THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE, BY DEALING WITH ITA NO . 4337/DEL/2014 (AY 2011- 12). 2 2. THE GROUNDS RAISED IN ITA NO. 4337/DEL/2012 (AY 2011-2012) READ AS UNDER:- I) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNT OF EXCESS INTEREST PAID TO PERSONS SPECI FIED U/S. 40A(2)(B) AMOUNTING TO RS. 46,55,593/-. II) THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, AD D OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL. 3. THE GROUNDS RAISED IN ITA NO. 4398/DEL/2012 (AY 2010-11) READ AS UNDER:- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE LD . CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 52 ,82,792/- MADE BY THE AO OUT OF INTEREST U/S. 40(A)(I) FOR NON DED UCTION OF TDS. II) THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, AD D OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL. 4. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE PAID INTEREST ON CERTAIN PERSONS COVERED U/S. 40A(2)(B) AT THE RATES OF RANGING FROM 15-16%. FOLLOWING HIS VIEW TAKEN IN THE IMMEDIATELY PRECEDI NG YEAR, THE AO HELD THAT THE INTEREST PAID TO SUCH PERSONS SHOULD BE RESTRICTED TO 12%. THE EXCESS INTEREST PAID AMOUNTING TO RS. 46,55,593/- FOR AY 2011-12 WA S DISALLOWED AND 3 ASSESSMENT WAS MADE AT AN INCOME OF RS. 48,30,090/- VIDE ORDER DATED 12.2.2014 PASSED U/S. 143(3) OF THE I.T. ACT, 1961 . 5. AGGRIEVED WITH THE AFORESAID ASSESSMENT ORDER, A SSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 30.5.2014 HAS DELETED THE DISALLOWANCE IN DISPUTE BY RELYING ON THE OTHER PASSED BY THE TRIBUNAL FOR THE IMMEDIATELY THREE PRECEDING ASSESS MENT YEARS, NAMELY 2007- 08 TO 2009-10 AND ALLOWED THE APPEAL OF THE ASSESSE E. 6. AGAINST THE ORDER OF THE LD. CIT(A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. LD. DR RELIED UPON THE ORDER OF THE AO AND COULD NOT PRODUCE ANY CONTRARY DECISION ON THE ISSUE IN DISPUTE PASSED BY THE HIGHER COURT. 8. LD. COUNSEL OF THE ASSESEE AT THE TIME OF HEARIN G HAS STATED THAT THE ISSUE IN DISPUTE HAS ALREADY ADJUDICATED AND DECIDED IN F AVOUR OF THE ASSESSEE BY THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR S 2007-08 TO 2009-10. HE ALSO FILED THE COPIES OF THE TRIBUNALS ORDER DATED 28.2.2014 PASSED BY THE ITAT G BENCH, DELHI IN ITA NO. 1594/DEL/2013 (AY 2009- 10) TITLE AS DCIT VS. SPORTS STATION INDIA PVT LTD. AND ORDER DATED 30.3. 21012 OF THE ITAT G BENCH PASSED IN ITA NO. 3262 AND 3256/DEL/2011 ASSESSMENT YEARS 2007-08 AND 2008-09 TITLE AS DCIT VS. SPORTS STATION INDIA PVT. LTD AND ITA NO. 4 2936/DEL/2011 (AY 2007-08) TITLE AS M/S SPORTS STAT ION (INDIA) PVT. LTD. VS. DCIT. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS ESPECIALLY THE ORDER OF THE REVENUE AUTHORITIES ALONGWITH THE ORDE RS CITED BY THE LD. COUNSEL OF THE ASSESEE OF THE TRIBUNAL IN ASSESSEES OWN CASE I.E. TRIBUNALS ORDER DATED 30.3.21012 OF THE ITAT G BENCH PASSED IN ITA NO. 3262 AND 3256/DEL/2011 ASSESSMENT YEARS 2007-08 AND 2008-09 TITLE AS DCIT VS. SPORTS STATION INDIA PVT. LTD AND ITA NO. 2936/DEL/2011 (AY 2007-08) TIT LE AS M/S SPORTS STATION (INDIA) PVT. LTD. VS. DCIT. FOR THE SAKE OF CONVEN IENCE, ON THE ISSUE IN DISPUTE THE RELEVANT PORTION OF THE TRIBUNALS FINDING AT PAG E NO. 13 TO 17 VIDE PARA NO. 7 TO 12.1 ARE REPRODUCED AS UNDER:- 7. GROUND NO. 2 IN THE APPEAL OF THE REVENUE FOR THE AY 2007-08 AND GROUND NO. 1 IN THEIR APPEAL FOR THE A Y 2008- 09 RELATE TO DISALLOWANCE U/S. 40A(2)(A) OF THE ACT . DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 200 7-08, THE AO NOTICED THAT THE ASSESSEE PAID INTEREST @15% PER ANNUM ON THE BORROWING FROM THE PERSONS COVERED U/S . 40A(2)(B) OF THE ACT. TO A QUERY BY THE AO AS TO WH Y THE INTEREST PAID @15% PAID BE NOT CONSIDERED AS EXCESS IVE AND UNREASONABLE, THE ASSESSEE REPLIED THAT RATE OF INT EREST WAS REASONABLE SINCE THE CITI BANK AT THE RELEVANT TIME GRANTED WORKING CAPITAL, CARRYING INTEREST @14.5% PER ANNUM WHILE THE UNSECURED LOAN CARRIED HIGHER RISK ELEMENT. HOW EVER, THE 5 AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUNT OF ~5,47,596/- IN TERMS OF PRO VISION OF SECTION 40A(2)(A) OF THE ACT, CONSIDERING INTERE ST @12% AS REASONABLE IN THE A Y 2007-08. 8. SIMILARLY, IN THE AY 2008-09, THE AO DISALLOWED AN AMOUNT OF RS. 10,64,461/- IN TERMS OF PROVISION OF SECTION 40A(2)(A) OF THE ACT, CONSIDERING INTEREST @12% AS REASONABLE. 9. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISALLOWANCE IN THE AY 2007-08 IN THE FOLLOWING TER MS:- '6.3 THE SUBMISSION GIVEN BY THE APPELLANT AND THE OBJECTIONS OF THE ASSESSING OFFICER HAVE BEEN CONSIDERED. IN ORDER TO MAKE A DISALLOWANCE ULS 40A(2)(B) IT IS NECESSARY THAT THE ASSESSING OFFICE R SHOULD ESTABLISH THAT THE BENEFITS GIVEN TO THE REL ATED PARTIES ARE MORE THAN THE FAIR MARKET VALUE. IF THE APPELLANT IS MAKING PAYMENTS TO OTHER PERSONS @15% THEN THERE IS NO SPECIAL FAVOUR WHICH IS BEING GIVE N TO THE RELATED PARTIES. FURTHER, THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLISH AS TO WHAT WAS THE MARKE T RATE OF INTEREST. IT IS FURTHER SEEN THAT THE APPEL LANT HAS PAID AN INTEREST OF 14.5% TO THE BANK, THUS, THERE IS NO JUSTIFICATION IN MAKING A DISALLOWANCE OF RS. 5,47,596/- ULS 40A(2)(B). THE ADDITION OF RS. 5,47,5961- IS HEREBY DELETED.' 6 10. SIMILARLY IN THE AY 2008-09, THE ID. CIT(A) DEL ETED THE DISALLOWANCE, HOLDING AS UNDER:- '4.3 THE SUBMISSION GIVEN BY THE APPELLANT AND THE OBJECTIONS OF THE ASSESSING OFFICER HAVE BEEN CONSIDERED. IN ORDER TO MAKE A DISALLOWANCE ULS 40A(2)(B) IT IS NECESSARY THAT THE ASSESSING OFFICER SHOULD ESTABLISH THAT THE BENEFITS GIVEN TO THE RELATED PARTIES ARE MORE THAN THE FAIR MARKET VALUE. IF THE APPELLANT. IS MAKING PAYMENTS TO OTHER PERSONS @ 15% THEN THERE IS NO SPECIAL FAVOUR WHICH IS BEING GIVEN TO THE RELATED PARTIES. FURTHER, THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLISH AS TO WHAT WAS THE MARKET RATE OF INTEREST. IT IS FURTHER SEEN THAT THE APPELLANT HAS PAID A INTEREST OF 14.5% TO THE BANK AND THIS BEING AN UNSECURED LOAN WILL CERTAINLY COMMAND A HIGHER RATE OF INTEREST THUS, THERE IS NO JUSTIFICATION IN MAKING A DISALLOWANCE OF RS. 10,64,461/- U/S. 40A(2)(B). THE ADDITION OF RS. 10,64,461/- IS HEREBY DELETED. 11. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE ID. CIT{A) .THE ID. DR SU PPORTED THE ORDER OF THE AO WHILE THE ID. AR ON BEHALF OF THE A SSESSEE SUPPORTED THE FINDINGS OF THE ID. CIT(A). 7 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDER, WE FIND THAT THE AO DID NOT BRING ANY MATERIAL ON R ECORD FOR HOLDING THAT THE PAYMENT OF INTEREST @15% PER ANNUM TO UNSECURED CREDITORS WAS EXCESSIVE AND HOW INTEREST @12% PA WAS REASONABLE OR REPRESENTED FAIR MARKET VALUE FOR THE SERVICES AND FACILITIES. BEFORE PROCEEDING FURTHER, WE MAY REFER TO THE PROVISIONS OF SECTION 40A(2) (A) OF TH E ACT, THE RELEVANT PORTION OF WHICH READS AS FOLLOWS : '40A(2 (A). WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND 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 THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING, TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION.' 12.1 A MERE GLANCE AT THE AFORESAID PROVISION REVEA LS THAT THE EXPENDITURE MENTIONED THEREIN IS IN RELATION TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THE SUB- SECTION AND T HE 8 EXPENDITURE HAS TO BE CONSIDERED IN RELATION TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSI NESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED B Y OR ACCRUING TO THE ASSESSEE THEREFROM. HON'BLE GUJRAT HIGH COURT OBSERVED IN CORONATION FLOUR MILLS VS. ACIT,1 88 TAXMAN 2?7 THAT IN RELATION TO THE DISALLOWANCE UND ER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT, A PLAIN READING OF THE PROVISION REVEALS THAT WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF SECTION 40A(2) OF THE ACT AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO (A) FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASS ESSEE; OR (C) THE BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES, THEN THE ASS ESSING OFFICER SHALL NOT ALLOW AS A DEDUCTION SO MUCH OF THE EXPEN DITURE AS IS SO CONSIDERED BY THE ASSESSING OFFICER TO BE EXC ESSIVE OR UNREASONABLE. THEREFORE, IT BECOMES APPARENT THAT T HE ASSESSING OFFICER IS REQUIRED TO RECORD A FINDING A S TO WHETHER THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE IN REL ATION TO ANYONE OF THE THREE REQUIREMENTS PRESCRIBED, WHICH ARE INDEPENDENT AND ALTERNATIVE TO EACH OTHER. ALL THE THREE REQUIREMENTS NEED NOT EXIST SIMULTANEOUSLY. IN A GI VEN CASE, IF ANYONE CONDITION IS SHOWN TO BE SATISFIED THE PROVI SION CAN 9 BE INVOKED AND APPLIED, IF THE FACTS SO WARRANT. TH US, ONLY SO MUCH OF THE EXPENSES, IF PAID TO A PERSON REFERRED TO IN CLAUSE (B), ARE ALLOWABLE WHICH ARE FOUND TO BE NOT EXCESS IVE AND UNREASONABLE AND THE EXCESSIVE OR UNREASONABLE PORT ION HAS TO BE DISALLOWED. IT IS WELL SETTLED THAT THE PROVI SIONS OF SECTION. 40A(2)(A) OF THE ACT CANNOT HAVE ANY APPLI CATION UNLESS IT IS FIRST CONCLUDED THAT THE EXPENDITURE W AS EXCESSIVE OR UNREASONABLE, AS HELD IN THE CASE OF UPPER INDIA STEEL MANUFACTURING AND ENGINEERING CO. PRIVATE LIMITED, 117 ITR 569(SC). IN THE INSTANT CASE, THERE IS NOTHING TO S UGGEST THAT THE AO FOUND THE PAYMENT OF INTEREST EXCESSIVE HAVI NG REGARD TO EITHER (A) FAIR MARKET VALUE OF THE SERVI CES OR FACILITIES; OR (B) THE LEGITIMATE NEEDS OF THE BUSI NESS OF THE ASSESSEE; OR (C) THE BENEFITS DERIVED BY OR ACCRUIN G TO THE ASSESSEE ON RECEIPT OF SUCH SERVICES OR FACILITIES. NOT A WHISPER HAS BEEN MADE BY THE AO IN RESPECT OF ANY O F THESE THREE INGREDIENTS IN HIS ASSESSMENT ORDERS. THERE I S NOTHING TO SUGGEST THAT THE AO EVER BROUGHT ANY MATERIAL ON RE CORD ON THIS ASPECT BEFORE CONCLUDING THAT INTEREST @15% WA S EXCESSIVE OR UNREASONABLE NOR EVEN CITED ANY COMPAR ABLE INSTANCES IN RESPECT OF THE FAIR MARKET VALUE OF TH E INTEREST ON UNSECURED LOANS. IN VIEW THE FOREGOING, ESPECIALL Y WHEN THERE IS NO MATERIAL ON RECORD TO HOLD THAT PAYMENT OF INTEREST @15%PA TO UNSECURED CREDITORS WAS EXCESSIVE, WE HAV E NO HESITATION IN UPHOLDING THE FINDINGS OF THE ID. CIT (A). THEREFORE, GROUND NO. 2 IN THE APPEAL OF THE REVENU E FOR THE 10 AY 2007-08 AND GROUND NO. 1 IN THEIR APPEAL FOR THE AY 2008-09 ARE DISMISSED. 9.1 KEEPING IN VIEW OF THE AFORESAID ORDER PASSED B Y THE TRIBUNAL ON 30.3.21012 PASSED IN ITA NO. 3262 AND 3256/DEL/201 1 ASSESSMENT YEARS 2007-08 AND 2008-09 TITLE AS DCIT VS. SPORTS STATIO N INDIA PVT. LTD AND ITA NO. 2936/DEL/2011 (AY 2007-08) TITLE AS M/S SPORTS STAT ION (INDIA) PVT. LTD. VS. DCIT, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE PRECEDENT, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS B OTH THE APPEALS OF THE REVENUE. 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/12/2016. SD/- SD/- [O.P. KANT] [O.P. KANT] [O.P. KANT] [O.P. KANT] [ [[ [H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU] ]] ] ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER DATE 16/12/2016 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES