Panchsheel Pharmaceuticals (P) Ltd, Meerut V. ACIT, Meerut

ITA 4374/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9681 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 16-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ISTIQEUQE AHMED
• Keywords: Fair market value

Judgement Text

ITA NO. 4374/DEL/09 A.Y. 2006-07 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 4374/DEL/2009 A.Y. : 2006-07 M/S PANCHSHEEL PHARMACEUTICALS (P) LTD. VS. ACI T, CIRCLE-2, 531, BEGUM BAGH, MEERUT MEERUT-250001 (UP) (PAN: AABCP 1158 L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL KUMAR, FCA DEPARTMENT BY : SHRI ISTIQEUQE AHMED, SR. DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDERS OF THE LD. CIT(A) DATED 8.9.2009 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT THE LD. CIT(A) ERRED IN SUSTAINING THE ADDITION OF RS. 51,068/- UNDER SECTION 40A(2)(B). 3. IN THIS CASE THE AO FOUND THAT THE ASSESSEE COMP ANY HAD PAID INTEREST AT THE RATE OF 18% TO PERSONS COVERED UNDER SECTION 40 A(2)(B) OF IT ACT, 1961 AMOUNTING TO RS. 2,55,338/-. THE AO REQUIRED THE A SSESSEE TO EXPLAIN AS TO WHY THE INTEREST AT THE RATE OF 15% SHOULD NOT BE C ONSIDERED EXCESSIVE AND UNREASONABLE KEEPING IN VIEW THE FAIR MARKET VALUE OF THE BENEFITS DERIVED THEREFROM. THE ASSESSEE REPLIED THAT INTEREST A T THE SAME RATE WAS PAID IN THE EARLIER YEARS ALSO. THE AO WAS NOT CONVINCED W ITH THIS ARGUMENT AND SHE OBSERVED THAT THE EXAMPLE OF LAST YEAR DID NOT ENTI TLE THE ASSESSEE TO CLAIM DEDUCTION EVERY YEAR. SHE HAS ALSO OBSERVED THAT T HE PREVAILING RATE CHARGED BY THE BANK DURING THE PERIOD WAS 12%. SHE THEREFO RE, HELD THAT THE RATE OF ITA NO. 4374/DEL/09 A.Y. 2006-07 2 15% WAS EXCESSIVE AND UNREASONABLE AND DISALLOWED 3 % WHICH RESULTED INTO AN ADDITION OF RS. 51,068/-. 4. UPON ASSESSEES APPEAL THE LD. CIT(A) UPHELD THE ORDER OF THE AO. 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. 6. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE THE INTEREST PAYMENT @15% THE PERSONS COVERED UNDER SECTION 40A(2)(B) WAS BEING DONE BY THE ASSESSEE FROM PREC EDING YEARS AND NO DISALLOWANCE HAS BEEN MADE EARLIER. SECTION 40A( 2)(B) MANDATES DISALLOWANCE, IF THE AO 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. NOW IN THE PRESENT CASE, WE FIND THAT AO HAS NOT MADE ANY COMPARISON WITH THE COMPAR ABLE MARKET RATES PREVAILING FOR OBTAINING FUNDS FROM PRIVATE PARTIES . HE HAS ONLY COMPARED WITH BANK LENDING RATES AND HAS TOTALLY IGNORED THE FACT THAT THE ASSESSEE WAS PAYING THE SAME INTEREST RATE IN THE EARLIER PERIO D ALSO. HENCE IN OUR CONSIDERED OPINION THE DISALLOWANCE IN THIS CASE IS NOT AS PER THE MANDATE OF SECTION 40A(2)(B). UNDER THE CIRCUMSTANCES, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/01/2010 UP ON CONCLUSION OF THE HEARING. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 14/01/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES