B.P. CHEMICALS, MUMBAI V. JT CIT 13(2), MUMBAI

ITA 466/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3449 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMAND J
• Assessee Lawyers: HARESH PURUSHOTTAMDAS SHAH
• Keywords: Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 466/MUM/2013 (ASSESSMENT YEAR : 2009-10) M/S. B.P.CHEMICALS, 3, 1 ST FLOOR, VIHAL CHAMBERS, 65, KAZI SAYED ST., MUMBAI 400003 PAN: AAAFB 0982G ... APPELLANT VS. THE JOINT COMMISSIONER OF INCOME TAX-13(2), MUMBAI. .... RESPONDENT APPELLANT BY : SHRI HARESH PURUSHOTTAMDAS SHAH RESPONDENT BY : SHRI PREMAND J. DATE OF HEARING : 10/05/2016 DATE OF PRONOUNCEMENT : 18 /05/2016 ORDER PER MAHAVIR SINGH, J.M: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER O F CIT(A)-24, MUMBAI IN APPEAL NO.CIT(A)-24/JCIT 13(2)/147/11-12 ORDER DATED 18/10/2012. ASSESSMENT WAS FRAMED BY JCIT, RANGE-1 3(2), MUMBAI FOR THE ASSESSMENT YEAR 2009-10 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREAFTER REFERRED AS THE ACT) VIDE HI S ORDER DATED 14/11/2011. 2. THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE AGA INST THE ORDER OF THE CIT(APPEALS) CONFIRMING THE DISALLOWANCE OF INT EREST PAYMENT TO 2 ITA NO. 466/MUM/2013 (ASSESSMENT YEAR : 2009-10) FAMILY MEMBERS BY INVOKING PROVISIONS OF SECTION 40 A(2)(B) OF THE ACT AMOUNTING TO RS.25,47,005/-. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN RUBBER, RUBBER CHEMICALS, SO LVENTS AND GENERAL MERCHANTS. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS PAID INTE REST @18% ON UNSECURED LOANS TAKEN FROM FAMILY MEMBERS. THE ASS ESSING OFFICER RESTRICTED THE RATE OF INTEREST PAID TO FAMILY MEMB ERS AT 12%. FOR THIS HE HAS ALSO RELIED ON ITAT ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05. AGGRIEVED, ASSESSEE PREFERRED AN APPE AL BEFORE CIT(A). 4. THE CIT(A) RELYING ON ITAT DECISION IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2004-05 CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING IN PARA 3.3.4 AS UNDER:- 3.3.4 THE ISSUE RELATING TO GENUINENESS OF THE PA YMENT OF INTEREST IS NOT RELEVANT WHILE DECIDING THE AMOUNT OF DEDUCTION ALL OWABLE TO THE ASSESSEE U/S 40A(2) OF THE LT. ACT, 1961. THE DISALLOWANCE H AS NOT BEEN MADE FOR THE REASON THAT THE EXPENDITURE IS NOT GENUINE. THE DIS ALLOWANCE HAS BEEN MADE BY VIRTUE OF THE PROVISIONS OF SEC. 40A(2) WHEREBY ANY EXPENDITURE WHICH IS EXCESSIVE OR UNREASONABLE IS REQUIRED TO BE DISALLO WED. THE ASSESSEE HAS NOT SHOWN AS TO HOW THE INTEREST @ 18% PAID TO PERSONS SPECIFIED U/S 40A(2)(B) WAS NOT EXCESSIVE AND UNREASONABLE IN LIGHT OF THE OPINION OF THE ASSESSING OFFICER THAT THE INTEREST AT THE RATE OF 12% WAS RE ASONABLE AND THE FINDINGS OF THE HON'BLE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR THE A.Y. 2004-05 ON THE SAME SET OF FACTS. CHARGING OF INTEREST AT A GIVEN RATE FROM TRADE DEBTORS CANNOT BE TAKEN TO BE THE MARKET RATE FOR T HE PURPOSES OF LOANS SINCE THESE ARE NOT COMPARABLES. THE ASSESSEE HAS NOT BEE N ABLE TO DEMONSTRATE AS TO HOW THE INTEREST RATE OF 18% WAS THE MARKET R ATE. AGGRIEVED, NOW ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, LD. COUN SEL FOR THE ASSESSEE 3 ITA NO. 466/MUM/2013 (ASSESSMENT YEAR : 2009-10) CLEARLY STATED THAT THE INTEREST PAYMENT IS NEITHER DOUBTED BY THE LOWER AUTHORITIES OR ITAT IN ASSESSMENT YEAR 2004-05. THE ONLY ISSUE, ACCORDING TO LD. COUNSEL FOR THE ASSESSEE IS THAT I NTEREST PAYMENT IS EXCESSIVE I.E.18% AND TRIBUNAL HAS RESTRICTED THE S AME AT 12%. HOWEVER, LD. COUNSEL FOR THE ASSESSEE STATED THAT I N ASSESSMENT YEAR 2004-05 ASSESSEES APPEAL IS PENDING BEFORE THE HON 'BLE BOMBAY HIGH COURT, WHEREIN THE SUBSTANTIAL QUESTION OF LAW ON T HIS ISSUES HAS BEEN ADMITTED BY HONBLE HIGH COURT. HE ALSO ARGUED THA T THE TRIBUNAL HAS NOT CONSIDERED THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL) PVT. LTD. 310 ITR 306(BOM), WHEREIN CBDT CIRCULAR NO.6-P DATED 06/07/1968 WAS C ONSIDERED, WHEREIN THE BOARD HAS TAKEN CATEGORICAL VIEW THAT N O DISALLOWANCE IS TO BE MADE IN RESPECT OF INTEREST PAYMENT TO SISTER CONCERN WHERE THERE IS NO ATTEMPT TO EVADE TAX. LD. COUNSEL FOR THE ASS ESSEE DREW OUR ATTENTION TO ASSESSEES PAPER BOOK PAGE22, WHEREIN COMPARATIVE CHART OF INTEREST PAID TO FAMILY MEMBERS AND OTHERS AND A LSO DETAILS OF INTEREST PAID TO VARIOUS PERSONS DURING THE RELEVAN T ASSESSMENT YEARS ARE FILED. ACCORDING TO LD. COUNSEL THOSE PERSONS H AVE INCLUDED THE INTEREST PAID BY ASSESSEE AS INCOME IN THEIR RESPEC TIVE RETURN OF INCOME AND PAID TAXES ACCORDINGLY. THE DETAILS ARE ENCLOS ED AT PAGES 22 TO 24 OF ASSESSEES PAPER BOOK. ACCORDING TO THE LD. COU NSEL FOR THE ASSESSEE, THE INTEREST PAYMENT WAS GENUINE AND INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE LOW ER AUTHORITIES HAVE NOT ELABORATED THAT HOW THIS EXPENDITURE OF INTERES T IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALU E OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E. 4 ITA NO. 466/MUM/2013 (ASSESSMENT YEAR : 2009-10) 6. ON THE OTHER HAND, LD. SR.DR ARGUED THAT THIS I SSUE IS COVERED BY THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 2004- 05 AND WHICH HAS BEEN FOLLOWED IN ASSESSMENT YEAR 2 005-06, 2006-07, 2007-08 AND 2008-09. ACCORDING TO HIM, THE DISALLO WANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY CIT(APPEALS) IS PERFECTLY AS PER THE PROVISIONS OF THE ACT. 7. WE HAVE GONE THOUGH THE DETAILS OF INTEREST PAID TO THE FAMILY MEMBERS AND NOTICED THAT THESE PARTIES HAVE INCLUDE D THE RECEIPTS OF INTEREST IN THEIR RESPECTIVE RETURN OF INCOME. THE DETAILS ARE FILED AT PAGES 23-24 OF THE ASSESSEES PAPER BOOK. WE FIND THAT MOST OF THE PAYEES ARE TAXED IN HIGHEST TAX BRACKET AND THERE I S NO ATTEMPT MADE BY THE ASSESSEE TO EVADE TAX BY EXCESSIVE PAYMENT T O RELATED PARTIES. WE FIND THAT THE ASSESSEE HAS BEEN PAYING SUCH INTE REST TO SOME OF THE PARTIES RIGHT FROM THE BEGINNING AND IN THE PAST N O SUCH DISALLOWANCE WAS MADE BY THE DEPARTMENT I.E. THE ASSESSING OFFIC ER WHILE FRAMING ASSESSMENT UNDER SECTION 143(3) OF THE ACT HIMSELF HAS ALLOWED INTEREST AT 21% TO THE ASSESSEE FOR THE ASSESSMENT YEAR 2001 -02 AND 2002-03, WE ARE OF THE VIEW THAT PAYMENT OF INTEREST TO ALL THE PARTIES IS PURELY OUT OF BUSINESS NECESSITY AND DECISION TO PAY INTER EST @18% PER ANNUM IS GUARDED BY COMMERCIAL CONSIDERATION AND IN THE I NTERTIES OF ITS BUSINESS NECESSITIES AND EXIGENCIES. LD. COUNSEL F OR THE ASSESSEE BEFORE US DEMONSTRATED THAT THE PREVAILING RATE OF INTERES T OF COMMERCIAL TRANSACTION IS 18% OR MORE AND FOR THIS PURPOSE HE PRODUCED SOME BILLS ISSUED TO THE ASSESSEE BY VARIOUS SUPPLIERS FOR THI S YEAR, IN WHICH IT IS CLEARLY MENTIONED THAT IN CASE OF LATE PAYMENT INTE REST @18% TO 26% TO BE CHARGED. SIMILARLY, HE HAS ALSO EXPLAINED THAT THE ASSESSEE ITSELF HAS 5 ITA NO. 466/MUM/2013 (ASSESSMENT YEAR : 2009-10) STIPULATED THE CHARGING OF INTEREST @24% FROM ITS C USTOMERS FOR LATE PAYMENT. BEFORE US LD. COUNSEL FOR THE ASSESSEE AL SO EXPLAINED THAT THE INTEREST RATE CHARGED BY BANKS @ 12% TO 15% ON C.C LIMITS OR BANK LOANS, WHICH INCLUDES SOME OTHER HIDDEN CHARGES AND IT IS ALSO FACT THAT BANK WHILE SANCTIONING LOAN PUT QUITE ONEROUS LIABI LITIES LIKE SUBMISSION OF STOCK STATEMENTS, PROJECT REPORT BY C HARTERED ACCOUNTANT, TIMELY PAYMENT OF INSTALMENTS AND ALSO SATISFACTORY SECURITIES OF EQUAL AMOUNT OR MORE OF LOAN. ACCORDI NG TO LD. COUNSEL FOR THE ASSESSEE THIS LOAN TAKEN FROM BANK IS FOR FIXED PERIOD AND PAYMENT IS MADE BY THE END OF THE PERIOD WITH CONSTANT MONI TORING AND CHECKS. WHEREAS, THE LOAN FROM THE FAMILY MEMBERS AND RELAT IVES CAN BE OBTAINED AND RETURNED WITHOUT ANY HUSTLES SO THERE IS PREMIUM ON THE SAME AND THIS A NORMAL MARKET PRACTICE. WE FIND TH AT THE ASSESSEE HAS TRIED TO EXPLAIN HIS CASE FROM ALL ANGLES AND MOREO VER THE DECISION RELIED UPON BY LD. COUNSEL FOR THE ASSESSEE OF HON' BLE BOMBAY HIGH COURT IN THE CASE OF INDO SAUDI SERVICES (TRAVEL) P VT. LTD.(SUPRA), WHEREIN IT IS HELD AS UNDER:- 5. IN VIEW OF THE AFORESAID ADMITTED FACTS WE ARE OF THE VIEW THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION TH AT THE COMMISSIONER OF INCOME TAX(APPEALS) WAS WRONG IN DISALLOWING HAL F PERCENT COMMISSION TO THE SISTER CONCERN OF THE ASSESSEE DU RING THE ASSESSMENT YEARS 1991-92 AND 1992-93. THE LEARNED ADVOCATE APP EARING FOR THE APPELLANT IS ALSO NOT IN A POSITION TO POINT OUT HO W THE ASSESSEE EVADED PAYMENT OF TAX BY THE ALLEGED PAYMENT OF HIGHER COM MISSION TO ITS SISTER CONCERN WAS ALSO PAYING TAX AT A HIGHER RATE AND CO PIES OF THE PAYMENT ORDERS OF THE SISTER CONCERN WERE TAKEN ON RECORD B Y THE TRIBUNAL SIMILAR VIEW IS TAKEN BY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. (2015) TAXMAN 5 32 (GUJ). IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE VI EW THAT SINCE THE ASSESSEE AS WELL AS THE RELATIVES, TO WHOM ASSESSEE HAS PAID INTEREST ARE 6 ITA NO. 466/MUM/2013 (ASSESSMENT YEAR : 2009-10) BEING TAXED HIGHER RATES, THE ENTIRE EXERCISE UNDER TAKEN BY THE ASSESSING OFFICER IS NEUTRAL EXERCISE AS FAR AS THE PAYMENT OF TAX IS CONCERNED AND THERE IS NO QUESTION OF EVADING OF PA YMENT OF TAX BY ANY OF THE PARTIES. FURTHER, HON'BLE BOMBAY HIGH COURT HAS CLEARLY LAID DOWN THAT CBDT IN ITS CIRCULAR NO.6-P DATED 06/07/1 968 DEBARS THE ASSESSING OFFICER FROM NOT ALLOWING SUCH PAYMENT MA DE TO RELATIVES AND SISTER CONCERNS, WHERE THERE IS NO ATTEMPT TO EVADE THE TAX. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT (SUPRA) AND GOING BY THE FACTS OF THE CASE, WE ALLO W THE CLAIM OF THE ASSESSEE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 18/05/201 6. SD/- SD/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTNAT MEMBER JUDICIAL M EMBER MUMBAI, DATED 18 /05/2016 VM , SR. PS 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// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI