Dy.CIT, Cen. Cir. Kolhapur, Kolhapur V. Star Oxochem P.Ltd., Kolhapur

ITA 467/PUN/2012

• Counselvise Citation: 46724514 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-10-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHENDRA MEHTA
• Assessee Lawyers: D S KOTHARI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 312/PN/2012 (ASSESSMENT YEAR 2009-10) M/S. STAR OXO CHEM. PVT. LTD., PLOT NO.483, OPP : A/P. CHIPRI, JAYSINGPUR, TAL : SHIROL, DIST :KOLHAPUR. PAN NO.AACCS5540G .. APPELLANT VS. DCIT, CENTRAL CIRCLE, KOLHAPUR .. RESPONDENT ITA NO. 467/PN/2012 (ASSESSMENT YEAR 2009-10) DCIT, CENTRAL CIRCLE, KOLHAPUR .. CROSS OBJECTOR VS. M/S. STAR OXO CHEM. PVT. LTD., PLOT NO.483, OPP : A/P. CHIPRI, JAYSINGPUR, TAL : SHIROL, DIST :KOLHAPUR. PAN NO. AACCS5540G .. APPELLANT IN THE APPEAL APPELLANT BY : SHRI MAHENDRA MEHTA RESPONDENT BY : SHRI D.S. KOTHARI DATE OF HEARING : 07-10-2013 DATE OF PRONOUNCEMENT : 10-10-2013 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS, THE FIRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AG AINST THE ORDER DATED 02-12-2011 OF THE CIT(A) KOLHAPUR RELATING TO ASSES SMENT YEAR 2009-10 2. THE ASSESSEES APPEAL WAS EARLIER DISMISSED BY T HE TRIBUNAL FOR NON- PROSECUTION. SUBSEQUENTLY, THE TRIBUNAL VIDE ORDER DATED 30-08-2013 2 RECALLED ITS EARLIER ORDER. HENCE, THE APPEAL FILE D BY THE ASSESSEE IS A RECALLED MATTER. ITA NO.312/PN/2012 (BY ASSESSEE) : 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D SALE OF OXALIC ACID. THE ORIGINAL RETURN OF INCOME IN THIS CASE W AS FILED ON 26-10-2009 DECLARING TOTAL INCOME OF RS.4,69,29,950/-. IT BEL ONGS TO THE SANJAY GHODAWAT GROUP WHEREIN A SEARCH U/S.132 AND SURVEY U/S.133A OF THE INCOME TAX ACT WAS CARRIED OUT ON 04-02-2009. IN R ESPONSE TO NOTICE U/S.153A(A) THE ASSESSEE REQUESTED TO CONSIDER THE REGULAR RETURN AS RETURN IN RESPONSE TO NOTICE U/S.153A(A). DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE AS SESSEE HAS DEBITED INTEREST AMOUNTING TO RS.95,81,00,212/- BEING INTER EST ON UNSECURED LOANS. 3.1 FROM THE DETAILS FURNISHED BY THE ASSESSEE THE ASSESSING OFFICER NOTED THAT THE INTEREST EXPENDITURE FOR THE YEAR IN CURRED BY THE ASSESSEE ON ACCOUNT OF UNSECURED LOAN IS AT RS.43,00,510/-. TH E BALANCE AMOUNT OF RS.52,80,702/- REPRESENTS THE INTEREST ON UNSECURED LOAN FOR A.YRS. 2006- 07, 2007-08 AND 2008-09. THE ASSESSING OFFICER, TH EREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST OF EARLI ER YEARS HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE ALLOWABILITY OF THE SAME WHEN THE ASSESSEE MAINTAINS ITS ACCOUNTS ON MERCANTILE SYSTE M. IT WAS EXPLAINED BY THE ASSESSEE THAT DUE TO VIGOROUS PROTESTS FROM SOC IETY THE ASSESSEE COMPANY WAS COMPELLED TO CLOSE DOWN ITS PLANT AT CH IPRI, DISTRICT KOLHAPUR FOR WHICH IT WAS DECIDED TO SHIFT THE PLANT AT ANKL ESHWAR, GUJARAT. TILL THE PLANT STARTS ITS MANUFACTURING ACTIVITY AND ATTAIN SOME PROFIT FROM ITS 3 ACTIVITY IT WAS UNDER REVIVAL. UNDER THESE CIRCUMST ANCES, NO INTEREST WAS ALLOWED AND CREDITED TO THE UNSECURED LOANS BECAUSE OF UNCERTAINTY OF REVIVAL OF THE PLANT FOR THE A.YRS. 2006-07, 2007-0 8 & 2008-09. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT WHEN THE ASSESSEE FOLLOWS M ERCANTILE SYSTEM OF ACCOUNTING EXPENDITURE OF THE PRECEDING YEARS IS NO T ALLOWABLE UNDER THE IMPUGNED ASSESSMENT YEAR. HE, THEREFORE, DISALLOWE D AN AMOUNT OF RS.52,80,702/-. 4. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER : 14. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. IT IS A FACT THAT THE APPELLANT HAS DEBITED INTEREST PERTAINING TO THE PR EVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 ALONG WITH INTEREST PERTAINING TO THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 20 09-10. IT IS ALSO A FACT THAT THE APPELLANT MAINTAINS ITS BOOKS OF ACCOUNT ON MER CANTILE BASIS. THEREFORE, UNDER THE NORMAL ACCOUNTING SYSTEM, THE APPELLANT S HOULD HAVE DEBITED THESE EXPENSES TO THE PROFIT AND LOSS ACCOUNT DURING THE RELEVANT ACCOUNTING PERIODS. A PERSON ACCEPTS A PARTICULAR AMOUNT OF MONEY AS LO AN OR DEPOSIT EITHER WITHOUT INTEREST OR WITH INTEREST. THE APPELLANT H AS NOT BEEN ABLE TO BRING OUT ANY FACTOR WHICH WOULD LEAD TO A CONCLUSION THAT TH E AFORESAID AMOUNTS WERE INTEREST BEARING FUNDS EVER SINCE THE LOANS WERE TA KEN. IN FACT, IN THE CASES OF SHRI ATULKUMAR S. JAIN, GHODAWAT INDUSTRIES INDIA P VT. LTD., SHRI PANKAJ S. JAIN AND SHRI PUSHPRAJ S. JAIN, THE AMOUNTS HAVE BEEN OU TSTANDING SINCE 1997-98 AND NO INTEREST WAS PAID TO THEM TILL THIS YEAR. HENCE , IT CAN BE SAFELY CONCLUDED THAT INTEREST WHICH ACCRUES WITH THE PASSAGE OF TIM E AND QUANTIFIED ON A PARTICULAR DATE WAS NOT CHARGEABLE ON THE OUTSTANDI NG AMOUNTS TILL THE END OF THE FINANCIAL YEAR 2008-09. COUPLED WITH THIS FACT AND ALSO THE REASON THAT THE APPELLANT MAINTAINS ITS BOOKS OF ACCOUNT ON MERCANT ILE BASIS, I DO NOT FIND THE ACT OF THE ASSESSING OFFICER IN DISALLOWING THE INT EREST PERTAINING TO PRIOR PERIODS AS ARBITRARY, ILLEGAL OR UNLAWFUL. IT IS BASED ON RECOGNISED ACCOUNTING PRINCIPLES AND IS SUPPORTED BY THE CONDUCT OF THE APPELLANT IN NOT CHARGING INTEREST ON LOANS OUTSTANDING IN THE NAMES OF THE PERSONS ABOVE IN EARLIER YEARS. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS U PHELD 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUND : ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN L AW THE AUTHORITIES BELOW HAVE ERRED IN SUSTAINING AN ADDITION OF RS.52,80,70 2/- BEING INTEREST PAID FOR EARLIER YEARS. THE ADDITION OF RS.52,80,702/- SO M ADE BE DELETED. 4 5.1 THE ASSESSEE HAS ALSO TAKEN AN ADDITIONAL GROUN D WHICH READS AS UNDER : WITHOUT PREJUDICE TO GROUND OF APPEAL NO.1 AND ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS OF LAW IT BE HELD THAT THE INTEREST OF EARLIER YEARS DEBITED TO THE PROFIT AND LOSS ACCOUN T FOR AY 2009/2010 BE HELD TO BE DEDUCTIBLE, UNDER THE FIRST PROVISO TO SECTION 4 0(A)(IA), IN THE CURRENT ASSESSMENT YEAR AY 2009/2010 AS THE TAX HAS BEEN DE DUCTED AND PAID ON THE ENTIRE INTEREST AMOUNT IN THE CURRENT ASSESSMENT YE AR AY 2009/2010. 5.2 SINCE NO FRESH FACTS ARE REQUIRED FOR DECIDING THE ADDITIONAL GROUND WHICH IS A LEGAL ONE, THEREFORE, FOLLOWING THE RATI O OF DECISION IN THE CASE OF NTPC LTD. REPORTED IN 229 ITR 383 (SC) AND JUTE CO RPORATION OF INDIA LTD. REPORTED IN 187 ITR 688 (SC) THE ADDITIONAL GR OUND RAISED BY THE ASSESSEE IS ALLOWED FOR ADJUDICATION. 6. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE INTEREST RELATING TO A.YRS. 2006-07, 2007-08 & 2008-09 WERE DEBITED TO T HE PROFIT AND LOSS ACCOUNT FOR THE IMPUGNED ASSESSMENT YEAR SINCE THER E WAS UNCERTAINTY OF REVIVAL OF THE FACTORY IN THE PRECEDING YEARS FOR W HICH THE INTEREST WAS NOT DEBITED IN THE RESPECTIVE ASSESSMENT YEARS. HE SUB MITTED THAT BECAUSE OF THE ACUTE FINANCIAL PROBLEM, EVEN IF THE ASSESSEE W OULD HAVE DEBITED INTEREST IN THE PRECEDING YEARS. THE ASSESSEE COULD NOT HAVE DEDUCTED AND DEPOSITED THE TDS AND THE AMOUNTS WOULD HAVE BEEN O BVIOUSLY DISALLOWED. SINCE THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR HAS DEBITED THE INTEREST AND DEDUCTED THE TAX THEREON AND DEPOSITED THE SAME , THEREFORE, THE SAME SHOULD BE ALLOWED AS DEDUCTION IN THE IMPUGNED ASSE SSMENT YEAR. HE ACCORDINGLY SUBMITTED THAT THE FULL INTEREST SHOULD BE ALLOWED AS DEDUCTION IN THE IMPUGNED ASSESSMENT YEAR. 5 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND TH E CIT(A). HE SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, HE CANNOT BE ALLOWED TO TINKER WITH HIS ACCOUNTS AND D EBIT THE INTEREST OF 3 PRECEDING ASSESSMENT YEARS TO THE PROFIT AND LOSS A CCOUNT OF THE IMPUGNED ASSESSMENT YEAR. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS NOT DEBITED THE INTEREST ON UNSECURED LOAN IN THE PROFIT AND LOSS ACCOUNT FOR THE ASSESSMENT YEARS 2006-07, 2007-08 & 2008-09 EVEN THOUGH IT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. WE FIND THE ASSESSEE HAS DEBITED INTEREST AMOUNTING TO RS.52,80,702/- BE ING INTEREST OF THE AFOREMENTIONED ASSESSMENT YEARS TO THE PROFIT AND L OSS ACCOUNT OF THE IMPUGNED ASSESSMENT YEAR AND CLAIMED THE SAME AS DE DUCTION FOR THE IMPUGNED ASSESSMENT YEAR. IT IS NOT THE CASE OF TH E ASSESSEE THAT HE WAS NOT AWARE OF THE RATE OF INTEREST AND THE AMOUNT INVOLV ED. FURTHER, THE FINDING OF THE LD.CIT(A) THAT IN THE CASE OF SHRI. ATULKUMA R S. JAIN, GHODAWAT INDUSTRIES INDIA PVT. LTD., SHRI PANKAJ S. JAIN AND SHRI PUSHPARAJ S. JAIN, THE AMOUNTS HAVE BEEN OUTSTANDING SINCE 1997-98 AND NO INTEREST WAS PAID TO THEM TILL THIS YEAR AND THEREFORE INTEREST WHICH AC CRUED WITH THE PASSAGE OF TIME AND QUANTIFIED ON A PARTICULAR DATE WAS NOT CH ARGEABLE ON THE OUTSTANDING AMOUNTS TILL THE END OF THE F.Y. 2008-0 9 COULD NOT BE CONTROVERTED BY THE LD. COUNSEL FOR THE ASSESSEE. 6 8.1 ON A POINTED QUERY BY THE BENCH AS TO WHETHER T HE ASSESSEE HAS DEBITED OTHER EXPENSES OTHER THAN INTEREST EXPENDIT URE IN THE PROFIT AND LOSS ACCOUNT OF ASSESSMENT YEARS 2006-07, 2007-08 & 2008 -09 THE LD. COUNSEL FOR THE ASSESSEE ANSWERED IN THE AFFIRMATIVE STATIN G THAT OTHER THAN INTEREST EXPENDITURE VARIOUS OTHER EXPENSES WERE DEBITED. 8.2 THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSE E THAT EVEN IF THE INTEREST WOULD HAVE BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT IN THOSE YEARS THE SAME WOULD HAVE STILL BEEN DISALLOWED SIN CE THE ASSESSEE WAS NOT IN A POSITION TO DEDUCT AND PAY THE TDS AND THE SAM E WOULD HAVE BEEN ALLOWED IN THE IMPUGNED ASSESSMENT YEAR AFTER PAYME NT OF THE TDS IN OUR OPINION IS WITHOUT ANY FORCE. SINCE THE ASSESSEE F OLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THE ACCOUNTS ARE AUDITED AS PER T HE COMPANIES ACT AS WELL AS UNDER THE PROVISIONS OF THE INCOME TAX ACT, THEREFORE, THE ASSESSEE WAS DUTY BOUND TO PREPARE ITS ACCOUNTS PROPERLY AND NOT IN A CASUAL MANNER LIKE IT HAS MAINTAINED BY NOT DEBITING THE INTEREST EXPENDITURE RELATING TO THE CONCERNED ASSESSMENT YEAR. UNDER THESE CIRCUMSTANC ES AND IN VIEW OF THE DETAILED ORDER PASSED BY THE LD.CIT(A) ON THIS ISSU E, WE FIND NO INFIRMITY IN THE SAME. ACCORDINGLY, THE SAME IS UPHELD. THE GROUNDS RAISED IN THE APPEAL AS WELL AS THE ADDITIONAL GROUND ARE DISMIS SED. ITA NO.467/PN/2012 (BY REVENUE) : 9. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM RELATED PARTIES AS PER PROVISIONS OF SECTION 4 0A(2)(B) AND HAS PAID INTEREST @15% P.A. HE THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST PAID @15% P.A. TO THE RELATED PARTIES SHOULD NOT BE TREATED AS 7 EXCESSIVE SINCE PREVAILING MARKET RATE IS 12% P.A. IN RESPONSE TO THE SAME, THE ASSESSEE REPLIED AS UNDER WHICH HAS BEEN REPROD UCED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER : THE INTEREST PAID TO DIRECTORS AND THEIR RELATIVE @ 15% MAY LOOK UNREASONABLE JUDGING IT FROM THE PREVAILING BANK RA TE OF INTEREST ETC., BUT IT HAS ALSO TO BE BORN IN MIND THAT THE ENTIRE LOAN IS UNS ECURED IT HAS NO CHARGE ON ANY OF THE ASSETS OF THE COMPANY IF THE COMPANY HAS NOT BE REVIVED IT WOULD HAVE BEEN DIFFICULT TO PAY BACK EVEN THE PRINCIPLE. AS THE COMPANY EARNED PROFITS IN THE YEAR 2008-09 IT THOUGH OF PAYING AN INTEREST @1 5% AND FURTHER PAYMENT OF INTEREST @15% HAS NOT CREATED ANY EVASION OF TAX AS ALL THE RECIPIENTS ARE ALSO CHARGEABLE TO TAX AT MAXIMUM RATE ONLY. THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO SAUD I SERVICES (TRAVEL) P. LTD. 310 ITR 306 HAS HELD THAT IN VIEW OF CBDT CIR CULAR NO.6-P DATED 6 TH JULY 1968 NO DISALLOWANCE IS TO BE MADE IN RESPECT OF PA YMENTS TO SISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. 10. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE DECISION RELIED ON BY THE ASSESSEE RELATES TO A CASE PERTAINING TO PAYMENT OF COMMISSION TO SISTER CONCERNS AND IS NOT RELATED TO PAYMENT OF INTEREST. FROM THE VARIOUS D ETAILS FURNISHED BY THE ASSESSEE, THE AO NOTED THAT THE ASSESSEE HAS TAKEN HUGE AMOUNT OF LOANS FROM VARIOUS BANKS FOR BUSINESS PURPOSE AND THEREFO RE THERE WAS NO REQUIREMENT OF TAKING ANY FURTHER LOAN FOR RUNNING OF/CARRYING OUT THE ASSESSEES BUSINESS, THAT TOO PAYING INTEREST @15% P.A. THE SUBMISSION OF THE ASSESSEE THAT THE DEPOSITORS ALSO PAID TAX ON T HEIR INCOME WAS ALSO REJECTED BY THE AO. OBSERVING THAT NORMAL RATE OF INTEREST FROM BANKS AND FINANCIAL INSTITUTIONS IS ABOUT 12% P.A. THE AO DIS ALLOWED THE INTEREST OF RS.10,58,235/- WHICH WAS IN EXCESS OF 12% P.A. AS P ER THE COMPUTATION AT PAGE 4 OF THE ASSESSMENT ORDER. 8 11. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE LOA NS OUTSTANDING IN THE BALANCE SHEET AS ON 31-03-2009 WERE FRESH BORROWING S TAKEN FOR THE PURPOSE OF EXPENDITURE OF ITS UNIT AT GUJARAT. FUR THER, SINCE THE COMPANY HAD STOPPED ITS OPERATION AT CHIPRI NO BANKER WOULD HAVE FINANCED ITS BUSINESS. ACCORDINGLY, THE ASSESSEE HAD TO BORROW FROM THE DIRECTORS AND RELATED PARTIES. THE DECISION OF THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI (TRAVEL) PVT. LTD. REPOR TED IN 310 ITR 306 WAS RELIED UPON. 12. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) RELYING ON VARIOUS DECISIONS DELETED THE ADDITION M ADE BY THE AO BY OBSERVING AS UNDER : 7. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT WI TH REFERENCE TO THE FACTS OF THE CASE. IT IS A FACT THAT THE APPELLANT HAD BORROWED CERTAIN AMOUNTS FROM THE PROMOTERS OF THE COMPANY AND HAD PAID INTE REST THEREON. THE RATE OF INTEREST VARIED FROM 12% TO 15%. DURING THE RELEVAN T PREVIOUS YEAR, THE APPELLANT HAD MADE A PAYMENT OF INTEREST @ 15%. TH E QUANTUM OF INTEREST PAID DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EA CH CASE. THE RATE OF INTEREST PAID IS DIRECTLY PROPORTIONAL TO THE URGEN CY WITH WHICH THE MONEY IS REQUIRED. IT ALSO DEPENDS UPON THE FACTOR SUCH AS W HETHER SOMEONE WOULD, IN THE ORDINARY COURSE OF BUSINESS, GIVE THIS AMOUNT T O ANOTHER PERSON WITHOUT ANY SECURITY. IT IS A FACT THAT WHEN A PERSON AGREE S TO PAY A VERY HIGH RATE OF INTEREST ON THE AMOUNTS BORROWED, THEN THE CHANCES OF THAT PERSON OBTAINING THE LOAN FROM ANY SOURCES IS NEGLIGIBLE OR TIME CON SUMING. IT IS UNDER THESE CIRCUMSTANCES THAT ORDINARILY UNSECURED LOANS ARE T AKEN AT A RATE WHICH IS HIGHER THAN THE EXISTING BANK LENDING RATES. IN FAC T, THE PLR I.E. THE PRIME LENDING RATE DECLARED BY THE BANKS IS NEVER AVAILAB LE TO THE CLIENT UNLESS THE CLIENT IS RELIABLE, OLD, HAS A PROVEN TRACK RECORD OF REPAYMENT AND DOES A CONSIDERABLE PART OF ITS BANKING BUSINESS WITH THAT INSTITUTION. THEREFORE, EVEN WHEN PLR IS 7% OR 8%, THE ACTUAL LENDING RATE HOVER S AROUND 12% TO 13%. IT IS KNOWN THAT THE CO-OPERATIVE BANKS WHO HAVE A SLIGHT LY LENIENT RULE IN DISBURSING LOANS CHARGE A RATE WHICH IS NOT LESS THAN 14% TO 1 5%. INSTANCES ALSO ABOUND WHEREIN USUFRUCTORY RATES OF INTEREST ARE CHARGED. UNDER THESE CIRCUMSTANCES, IF THE APPELLANT HAS PAID AN INTEREST RATE OF 15% T O THE DIRECTORS AND SHAREHOLDERS OF THE COMPANY, THEN THE SAME CANNOT B E DISALLOWED MERELY BECAUSE THE AMOUNT HAS BEEN PAID TO THE SHAREHOLDER S AND DIRECTORS. ONE MUST NOT LOSE SIGHT OF THE FACT THAT THESE PAYMENTS WERE MADE TO THE APPELLANT WITHOUT PLEDGING OF ANY TITLE DEED OR SECURITY AND WITHOUT THE APPELLANT GOING THROUGH ANY CUMBERSOME PROCESS OF FORMAL COMPLIANCE S WHICH WOULD BE TIME CONSUMING. 9 8. IN THE CASE OF RAM AVTAR GARG V. INCOME-TAX OFFICER [2010] 195 TAXMAN 61 (JP.)(MAG) IT WAS HELD THAT - VARIOUS COURTS' AUTHORITIES HAVE STATED THAT IT IS FOR AN ASSESSEE OR A BUSINESSMAN TO MANAGE HIS AFFAIRS AND IT IS NOT FOR THE DEPARTMENT TO COME TO THE CONCLUSION THAT WHAT IS FAIR OR REASONA BLE. THE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF BIRLA GWAL IOR (P.) LTD. V. CIT [1962] 44 ITR 847 HAS STATED THAT IT IS FOR THE ASS ESSEE TO JUDGE AS TO WHAT RATE IS REASONABLE. IT IS FURTHER STATED THAT WHEN THE INCOME-TAX AUTHORITIES HAVE FOUND THAT THE BORROWING TRANSACTI ONS WERE NOT ILLUSORY OR COLOURABLE AND THAT THE CAPITAL WAS BOR ROWED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND THE AMOUNT OF INTER EST WAS PAID, THEY HAVE NO JURISDICTION TO DETERMINE WHETHER THE RATE OF INTEREST AGREED TO PAY WAS REASONABLE OR NOT AND TO DISALLOW A PORTION OF THE INTEREST WHICH HAS BEEN PAID. THE INCOME-TAX APPELLATE TRIBU NAL, AHMEDABAD BENCH IN THE CASE OF OMKARMAL GAURISHANKAR V. ITO [ 1991] 39 TTJ (AHD.) 223 HELD THAT THE RATE OF 24 PER CENT CANNOT BE TRE ATED AS UNREASONABLE OR EXCESSIVE AND THEREFORE, DIRECTED ALLOWANCE OF T HE ENTIRE INTEREST. 9. ON THIS ISSUE, THE HONOURABLE ITAT IN SATYANARAINKESHO RAM (P.) LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX [2009] 122 TTJ 83 9 (LUCK.) HELD AS UNDER : WHERE ASSESSING OFFICER HAD ONLY RECORDED REASONS T HAT PAYMENT OF INTEREST AT RATE OF 24 PER CENT TO RELATIVES OF DIR ECTORS WAS ON HIGHER SIDE THAN FAIR MARKET INTEREST RATE, WITHOUT HAVING ANY INFORMATION AS TO WHAT SHOULD BE FAIR MARKET RATE, ASSESSING OF FICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE UNDER SECTION 40A( 2) [ASSESSMENT YEAR 1995-96] 10. SIMILARLY, THE HON. AMRITSAR BENCH OF THE ITAT HAS HELD IN NUMEROUS CASES THAT INTEREST AT ABOVE THE MARKET RATES IS AN ALLOWABLE EXPENSE IN THE CASES OF ANIL KUMAR V. IAC [1986] 15 ITD 695, RAVINDER KUMAR MALHOTRA IN ITA NO. 540 (ASR) OF 2004, AIM FORGING V. ACIT IN ITA N O. 44 (ASR) OF 2005 AND PRAMOD KUMAR RAJ KUMAR V ACIT IN ITA NO. 267 (ASR) OF 2005. IN FACT, IN ALL THESE CASES INTEREST RATES WERE RANGING BETWEEN 28% TO 24%. THUS, IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT THE ASSESSING OFF ICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF ` 10,58,035/-. THIS GROUND OF APPEAL IS, THEREFORE, ALLOWED. 13. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING OF RS.10,58,03 5/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST ON UNSECURED LOAN WHICH WA S PAID TO DIRECTORS AND RELATIVES IN EXCESS OF 12% WHEN PREVAILING BANK RAT E IS UP TO 12% WHICH IS AN INDIRECT ATTEMPT OF EVADING TAX. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING ADDITION MADE ON A CCOUNT OF EXCESS INTEREST PAID TO DIRECTORS AND RELATIVES WHEN THERE WAS NO REASON WHAT SO EVER FOR THE ASSESSEE TO CONTINUE SUCH UNSECURED LOANS AND PAY I NTEREST AT THE RATE OF 15% 10 WHEN SUBSTANTIAL FUNDS WERE IN POSSESSION OF THE AS SESSEE FOR LIQUIDATING THE SAID LOANS. 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN IGNORING THE FACT THAT BENE FICIARIES ARE THE DIRECTORS AND RELATIVES WHO HAVE DIRECT CONTROL OVER THE ASSESSEE COMPANY AND ARE AT NO LOSS WHAT SO EVER BY LENDING LOANS, HENCE PLEDGING OF TI TLE DEED AS SECURITY AGAINST LOAN TO THEIR OWN CONTROLLED COMPANY WILL NOT MAKE ANY DIFFERENCE TO THE FACT THAT HIGHER RATE OF INTEREST TO THEMSELVES IS AN AT TEMPT TO EVADE TAXES. 4. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND , AND MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE REGARDING THE GENUI NENESS OF THE AMOUNT OF THE LOAN. ONLY DISPUTE IN THE INSTANT CASE IS THE ALLOWABILITY OF INTEREST @15% P.A. AS CLAIMED BY THE ASSESSEE AND UPHELD BY THE CIT(A) OR THE INTEREST @12% P.A. AS DETERMINED BY THE AO. FROM T HE VARIOUS DETAILS FURNISHED BY THE ASSESSEE WE FIND SUBSTANCE IN THE ARGUMENT OF THE LD.COUNSEL FOR THE ASSESSEE THAT SINCE THE COMPANY HAD STOPPED IS OPERATION AT CHIPRI NO BANKER WOULD HAVE FINANCED ITS BUSINES S FOR WHICH BORROWING FROM THE DIRECTORS WERE INEVITABLE AND THE LOANS HA VE BEEN TAKEN DURING THE IMPUGNED ASSESSMENT YEAR. FURTHER, IN THE INSTANT CASE THE LOANS HAVE BEEN OBTAINED FROM THE DIRECTORS AND OTHER RELATED CONCE RNS WITHOUT PLEDGING OF ANY TITLE DEED OR SECURITY AND WITHOUT GOING THROUG H ANY CUMBERSOME PROCESS WHICH IS OTHERWISE APPLICABLE TO LOANS OBTA INED FROM BANKS AND OTHER FINANCIAL INSTITUTIONS. THEREFORE, IN OUR OP INION, THE PAYMENT OF INTEREST @15% P.A. TO THE DIRECTORS AND THE RELATED PARTIES UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE CANNOT BE CONSIDERED AS EXCESSIVE OR UNREASONABLE. IN THIS VIEW OF THE MATTER AND IN VI EW OF THE DETAILED ORDER 11 PASSED BY THE LD.CIT(A) ON THIS ISSUE, WE FIND NO I NFIRMITY IN THE SAME. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAI SED BY THE REVENUE ARE DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DISMISSED PRONOUNCED IN THE OPEN COURT ON THIS THE 10 TH DAY OF OCTOBER, 2013. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 10 TH OCTOBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-KOLHAPUR 4. THE CIT, KOLHAPUR 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE