CHEMAROMA DRUG HOUSE, MUMBAI V. ACIT, WARD-18(1), MUMBAI

ITA 4473/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6284 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 12-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: VIRESH B SHAH
• Keywords: Set aside
• Section: 201

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) I.T.A. NO. 4473 /MUM/ 201 8 (ASSESSMENT YEAR 20 1 0 - 1 1 ) CHEMAROMA DRUG HOUSE 407, NEW SONAL LINK INDUSTRIAL ESTATE, BUILDING NO. 2, LINK ROAD, MALAD W MUMBAI - 400 064. P AN : AAAFC1017F V S . ACIT WARD 18(1) I.T. OFFICE MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI VIRESH B. SHAH DEPARTMENT BY SHRI CHAITANYA ANJARIA DATE OF HEARING 11 . 7 . 201 9 DATE OF PRONOUNCEMENT 9 . 10 . 201 9 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 3.4.2018 AND PERTAINS TO A.Y. 2010 - 11. 2. ISSUE RAISED IS THAT LEARNED CIT(A) ERRED IN DISALLOWING RS. 3,50,745/ - OUT OF EXPENSES COVERED U/S. 40A(2)(B) OF THE I.T. ACT. 3 . BRIEF FACTS OF THE CASE ARE AS UNDER : - DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NO TI CED T H AT THE ASSESSEE FIRM HAD TAKEN LOANS FROM VARIOUS PARTIES WHICH INCLUDED RELATIVES COVERED U/S.40A(2)(B) OF THE ACT. IT WAS SEEN THAT THE ASSESSEE HAD PAID INT EREST @ 15%, HOWEVER THE RELATIVES WERE PAID INTEREST @ 18%. THE TOTAL INTEREST PAID TO RELATIVE COVERED U/S 40A(2)(B) WAS RS.18,43,465 / - . O UT OF THIS AMOUNT, ONLY IN THE CASE OF SHRI RAJESH H. SHAH (HUF), THE INTEREST PAID AMOUNTING TO RS.90,000/ - WAS @ 12%. THE AO ASKED THE ASSESSEE TO CLARIFY THE SAME. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE AO THAT OUT OF THE TOTAL BORROWED FUND : A PART WAS BORROWED IN THE INITIAL PHASE AND THE RATE WAS AGREED @ 18%. THESE LOANS WERE RECEIVED DURING THE PERIOD WHEN, THEIR CHEMAROMA DRUG HOUSE 2 FINANCIAL CONDITION WAS VERY POOR AND THEY WERE IN URGENT NEED OF FINANCE. SUBSEQUENTLY, INTEREST @ 15% WAS PAID ON THE BORROWED LOANS. 4. THE REPLY OF THE ASSESSEE WAS DULY CONSIDERED BY THE AO. HE NOTED THAT THE ASSESSEE WAS NOT ABLE TO SUB STANTIATE THE REASONS FOR TAKING LOANS AT HIGHER RATES FROM RELATIVES WHEN THE LO A NS FR O M OUTSIDERS WERE AVAILABLE AT MUCH LOWER RATE. THE AO HAS RE LIED ON THE FOLLOWING JUDGEMENTS WHEREIN THE CO URTS HAVE HELD THAT IN CASE OF PAYMENT TO RELATIVES, THE RE SONABLENESS HAS TO BE PROVED BY THE ASSESSEE AND NOT THE DEPARTMENT : - (I) NUND & SAMONTA CO. PVT. LTD. VS. CIT (SC), 78 ITR 268. (II) CIT VS. NEPC INDIA LTD. (MAD), 303 ITR 271. (III) CIT VS. SHATRUNJAY DI AMO N DS (BOM), 261 ITR 258. 5. ACCORDINGLY, THE AO PROCEEDED TO DISALLOW INTEREST PAID IN EXCESS OF 15% AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 6. UPON ASSESSEES APPEAL LEARNED CIT(A) CONFIRMED THE DISALLOWANCE AGAINST THIS ORDER. THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 7. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT LOANS HAVE BEEN TAKEN FROM THE RELATIVES AT THE TIME WHEN INTEREST RATES WERE VERY HIGH AND THESE ARE OLD LOANS. HE FURTHER SUBMITTED THAT LOANS WERE TAKEN FROM THE RELATIVES WHERE A LOT OF PAPER FORMALITIES ARE NOT REQUIRED, HENCE HE SUBMITTED THAT 18% RATE OF INTEREST GIVEN TO SOME OF THEM SHOULD BE ALLOWED. 8. PER CONTRA, LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. UPON CAREFUL CONSIDERATION, I NOTE THAT THE ASSESSEE HAS PAID INTEREST @ 18% TO THE RELATIVES, WHICH IS S LIGHTLY HIGHER THAN 15% RATE PAID TO THE BANKS. ASSESSEES SUBMISSION IS THAT THESE ADVANCES/LOANS WERE TAKEN AT THE TIME OF STRESS ON THE FACT THAT MANY OF THE FORMALITIES ARE NOT REQUIRED IN OBTAINING LOANS FROM THE RELATIVES. IN MY CONSIDERED OPINION RATE OF INTEREST CHARGED BY CHEMAROMA DRUG HOUSE 3 THE ASSESSEE IS REASONABLE. HENCE, I SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION. 10. IN THE RESULT , APPEAL BY THE ASSESSEE STANDS ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 9 . 10 . 201 9 . SD/ - (SH A MIM YAHYA ) ACCOUNTANT MEMBER MUMBAI ; DATED : 9 / 10 / 20 1 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI