The Deputy Commissioner of Income tax, Jalandhar V. M/s. Gujranwala Jewellers, Jalandhar

ITA 469/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5726 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K SUD
• Assessee Lawyers: AMRIK CHAND

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.L. KARWA, VICE PRESIDENT AND SH. MEHAR SINGH, ACCOUNTANT MEMBER I.T.A. NO. 446(ASR)/2010 ASSESSMENT YEAR:2007-08 PAN :AAAFG8382R M/S. GUJRANWALA JEWELLERS, VS. THE ADDL. COMMISSION ER OF INCOME-TAX, JALANDHAR CITY. RANGE-III, JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A. NO.469(ASR)/2010 ASSESSMENT YEAR: 2007-08 THE ADDL. COMMR. OF INCOME-TAX, VS. M/S. GUJRANWALA JEWELLERS, RANGE-III, JALANDHAR. JALANDHAR CITY. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. Y.K. SUD, CA RESPONDENT BY: SH. AMRIK CHAND, DR ORDER PER MEHAR SINGH, AM, THESE ARE THE CROSS APPEALS ONE BY THE ASSESSEE AND ANOTHER BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A ), JALANDHAR, DATED 29.09.2010, PASSED UNDER SECTION 250(6) OF THE INCO ME-TAX ACT, 1961 ( HEREINAFTER REFERRED TO IN SHORT THE ACT) FOR T HE ASSESSMENT YEAR 2007-08. 2. FIRST, WE TAKE UP APPEAL FILED BY THE REVENUE IN ITA NO.469(ASR)/2010 FOR THE ASSESSMENT YEAR 2007-08, W HERE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.620 4862/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAI D TO 2 DEPOSITORS BY INVOKING THE PROVISIONS OF SECTION 40 (A)(2)(B) OF THE INCOME-TAX ACT,1961. 2. WHILE DOING SO, THE LD. CIT(A), HAS FAILED TO AP PRECIATE THE FACTS THAT THE RATE OF INTEREST HAS GONE DOWN AS LE NDING RATES OF BANKS WERE IN THE RANGE OF 12% TO 14%. THE LD. CIT( A) ERRED IN ALLOWING THE INTEREST 21% AGAINST 15% ALLOWED BY THE A.O. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN DECLARING AN INCOME OF RS.26272056/- WAS FILED WHICH WAS PROCESSED U/S 143 (1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY. ALL THE QUERIES RAISED WERE DULY COMPLIED WITH ALONGWITH SUPPORTING EVIDEN CES BY THE AO CHOSE TO IGNORE THE SUBMISSIONS/EVIDENCES PLACED ON RECOR D AND FRAMED THE ASSESSMENT AT AN FIGURE OF RS.33793389/- AND THEREB Y MADE THE ADDITION OF RS.6204862/- ON ACCOUNT OF INTEREST PAID TO DEPOSIT ORS BY RESTRICTING IT TO 15% AS AGAINST 21% CLAIMED BY THE ASSESSEE. BEING A GGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO AFTER DISCUSSING THE ASPECTS OF THE CASE AND DELETED THE ADDITION BY FOLLOWING THE DECISION OF THE ITAT, AMRITSAR BENCH IN THE CASE OF ACIT-II, JALANDHAR VS. M/S. MEX SWITCHGEARS (P) LTD. IN ITA NO.346 (ASR)/2 005. NOW AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEA L BEFORE US. 4. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE HIM. HE, FURTHER, SUBMITTED THAT THE ISSUE INVOLVED, IS SQUARELY COVERED BY THE DECISION OF THIS BENCH O F THE TRIBUNAL, DATED 1 ST FEB., 2001, PASSED IN THE CASE OF ACIT-II, JALANDHA R VS. M/S. MEX SWITCHGEARS (P) LTD. IN ITA NO.346 (ASR)/2005. 3 5. THE LD. DR ON THE OTHER HAND, RELIED ON THE OR DER OF THE ASSESSING OFFICER. 6. HAVING HEARD BOTH THE PARTIES, WE FIND THAT SIMI LAR ISSUE CAME UP FOR CONSIDERATION, BEFORE THIS BENCH OF THE TRIBUNAL, I N THE CASE OF ACIT-II, JALANDHAR VS. M/S. MEX SWITCHGEARS (P) LTD. IN ITA NO.346 (ASR)/2005, DATED 1 ST FEB.,2007, WHERE THE ISSUE WAS DECIDED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. THE RELEVANT FINDING PA RT OF THE IMPUGNED ITAT ORDER IS REPRODUCED HEREUNDER: 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. WE FIND THE STAND TAKEN BY THE DEPARTMENT TO BE UNSUSTAINABLE. UNDISPUTEDLY, THE ASSESSEE HAS, ALL ALONG, BEEN ALLOWED 24% INTEREST, RIGHT FROM THE FINANCIAL YEAR 1990-91 TO FINANCIAL YEA 1999-2000 AND FINANCIAL YEAR 2001-02. IT IS ONLY FOR THE FINANCIAL YEAR 2000-01, RELEVANT TO TH E ASSESSMENT YEAR 2001-02, I.E., THE YEAR UNDER CONSIDERATION BE FORE US, THAT THE SAME HAD BEEN QUESTIONED. THE A.O., WE FIND, W AS NOT JUSTIFIED IN COMPARING THE RATE OF INTEREST PAID BY THE ASSESSEE TO THAT CHARGED BY BANKS. IT CANNOT BE DENIED THAT CHARGING INTEREST BY THE BANK IS ENTIRELY DIFFERENT FROM CHA RGING OF INTEREST QUA UNSECURED LOANS. THE LOANS FROM BANKS ARE UNDOUBTEDLY SECURED. THERE IS NO RISK FACTOR INVOL VED IN SUCH LOANS. APROPOS UNSECURED LOANS, HOWEVER, RISK FACT OR IS ALWAYS THERE AND THIS IS WHAT MAKES THE RATE OF INTEREST W ITH REGARD TO THE UNSECURED LOANS HIGHER. IN THE CASE OF SUCH LO ANS, THE LOANEE HAS TO ARRANGE FOR SECURITY, WITHOUT WHICH, THERE IS NO HOPE OF RAISING ANY SUCH LOAN. THESE FACTS, HAVE E RRINGLY NOT BEEN CONSIDERED BY THE A.O. THEN, UNDISPUTEDLY, TH E LOANS UNDER CONSIDERATION HERE ARE EARLIER LOANS. RELIA NCE BY THE ASSESSEE ON CHAMBA MAL ROOP CHAND (SUPRA) IS CORR ECT. THIS TRIBUNAL, IN THAT CASE, HAS HELD RATE OF INTER EST UPTO 24% TO BE REASONABLE. IN HOLDING SO, THE DECISION OF T HIS TRIBUNAL IN THE CASE OF SHRI ANIL KUMAR, JALANDHAR, FOR THE A SSESSMENT YEAR 1978-79, IN I.T.A. NO.61(ASR)/1980, WAS FOLLOW ED. THUS, EVEN FOR THE ASSESSMENT YEAR 1978-79, 24% RATE OF I NTEREST WAS HELD TO BE REASONABLE. THAT BEING SO, THE A.O. WAS NOT JUSTIFIED 4 IN OBSERVING THAT SINCE THE ASSESSMENT YEAR IN THE CASE OF CHAMBA MAL ROOP CHAND (SUPRA) WAS 1991-92, THAT DECISION WAS NOT APPLICABLE, TO THE YEAR UNDER CONS IDERATION IN THE PRESENT CASE FOR ASSESSMENT YEAR 2001-02. 7. IN VIEW OF THE ABOVE, FINDING NO MERIT IN THE GROUN DS RAISED BY THE DEPARTMENT, WE HEREBY REJECT THE SAME. 6.1. WE ALSO FIND THAT THE LD. CIT(A), AFTER DISCUS SING THE ISSUE AT LENGTH, CONCLUDED IN PARA 1.10 OF THE ORDER HELD THAT THE DISALLOWANCE OF INTEREST MADE BY THE A.O. CANNOT BE SUSTAINED AND ALLOWED TH E GROUND OF APPEAL OF THE ASSESSEE. WE CONCUR THE FINDINGS OF THE A.O. 6.2. IN LIGHT OF ABOVE DISCUSSIONS AND RESPECTFULL Y FOLLOWING THE ORDER OF THE TRIBUNAL PASSED IN THE CASE OF ACIT-II, JALAND HAR VS. M/S. MEX SWITCHGEARS (P) LTD. IN ITA NO.346 (ASR)/2005 (SUPR A), THE APPEAL OF THE REVENUE IS DISMISSED. 7. NOW, WE TURN TO DEAL WITH THE APPEAL OF THE ASSE SSEE IN ITA NO.446(ASR)/2010 FOR THE A.Y. 2007-08, WHERE THE AS SESSEE HAS RAISED FOLLOWING GROUNDS: 1.1 THAT THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OF RS.12,66,471 MADE BY THE A.O. OUT OF LABOUR AND MAKING CHARGES PAID TO SISTER CONCERN U/S 40A(2 )(B). 2. THAT WHILE UPHOLDING THE DISALLOWANCE THE CIT( A) FAILED TO APPRECIATE THAT A.O. HAD FAILED TO MAKE ANY ENQUIR Y OF LABOUR AND MAKING CHARGES PREVAILING IN DELHI WHERE THE S ISTER CONCERN OF THE ASSESSEE WAS LOCATED. 3. THAT THE LD. CIT(A) EVEN FAILED TO CONSIDER THE PAST HISTORY DESPITE THE COMPLETE DETAILS FILED BY THE ASSESSE. 5 4. THAT THE CIT(A) MISERABLY FAILED TO COMMENT UPON THE VARIOUS JUDGMENTS RELIED UPON BY THE ASSESSEE AND SIMPLY BR USHED THEM ASIDE WITH A FINDING THAT A.O. HAS DISTINGUISHED TH E JUDGMENTS AND HE AGREES WITH THE SAME. 5. THAT THE ORDERS OF THE CIT(A) AND A.O. ARE AGAIN ST LAW AND FACTS OF THE CASE. 8. GROUND NOS. 1 TO 4 ARE INTER-CONNECTED AND DEALS WITH A SINGLE ISSUE OF DISALLOWANCE OF RS.12,66,471/-, UPHELD BY THE LD . CIT(A) UNDER SECTION 40A(2)(B) OF THE ACT. IN THE COURSE OF PRESENT APP ELLATE PROCEEDINGS, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE A.O. FA ILED TO APPRECIATE THE LEGAL POSITION SUBMITTED BEFORE HIM IN THE PRESENT CASE. HE FURTHER CONTENDED THAT THE CASES RELIED UPON BY THE AUTHORITIES ARE NOT COMPARABLE. THEREFORE, APPLE CANNOT BE COMPARED WITH BANANA. HE PLACED REL IANCE ON THE FOLLOWING DECISIONS: (I) INCOME TAX OFFICER VS. M.M. TEXTILES, (201) 122 ITD 435 (ITAT, MUMBAI) (II) SATYA NARAIN KESHO RAM (P) LTD. VS. DCIT (200 () 122 TTJ (LUCK) 839 (ITAT, LUCKNOW) (III) UNITED EXPORTS VS. C.I.T. (2010) 229 CTR (DEL) 93 (IV) ITO VS. MAYUR AGGARWAL (2010) 133 TTJ (AGRA)(TM) 1 (V) SAMBA ROLLERS FLOUR MILL LTD. VS. ACIT 121 TTJ (NA G)(TM) 761. (VI) COMMISSIONER OF INCOME TAX & ANR. VS. GLAXO SMITHKL INE ASIA (P) LTD. (2010) 236 CTR 113 (SC) (VII) CIT VS. SIYA RAM GARG (HUF) (2011) 237 CTR 321 (P&H ) (VIII) CIT VS. INDO SAUDI SERVICES (TRAVEL ) (P) LTD. (200 8) 219 CTR (BOM.) 562. 8.1. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY CO NTENDED THAT LABOUR/MAKING CHARGES PAID SOLELY DEPEND UPON THE NATURE OF WORK DONE I.E. DESIGNING AND WORKMANSHIP OF THE ORNAMENTS MAD E. IN THE PRESENT CASE, 6 LABOUR/MAKING CHARGES PAID TO THE SISTER CONCERN AR E FAIR AND REASONABLE. THE LD. CIT(A) HAS FAILED TO APPRECIATE THE RELEVANT F ACT SITUATION OF THE PRESENT CASE. HE SUBMITTED THAT THE DISALLOWANCE MADE AND CONFIRMED U/S 40A(2)(B) OF THE ACT, IS WITHOUT MAKING ANY ENQUIRY AS TO WHA T IS THE PREVAILING MARKET LABOUR RATE OF MAKING CHARGES OF JEWELLERY IN DELHI AND WITHOUT BRINGING ON RECORD THAT THESE CHARGES WERE EXCESSIVE FOR EVASIO N OF THE TAX. HE HAS DRAWN OUR ATTENTION TO THE SAID DECISIONS. 9. THE LD. DR, ON THE OTHER HAND, RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD BOTH THE PARTIES, CAREFULLY CONSI DERED THE RIVAL SUBMISSION, RELEVANT MATERIAL PLACED ON RECORD, INC LUDING THE CASE LAWS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE. H AVING REGARD TO THE FACT- SITUATION OF THE CASE, WE FIND MERIT IN THE CONTENT ION OF THE LD. COUNSEL OF THE ASSESSEE THAT LABOUR CHARGES CAN BE COMPARED WI TH IDENTICAL FACT- SITUATION OF THE CASE. IN THE CASE OF JEWELLERY, IT BECOMES DIFFICULT TO RESORT TO COMPARISON IN RESPECT OF ITEMS OF JEWELLERY WITH DI FFERENT DESIGNS OF JEWELLERY. ONLY THE COMPARABLE DESIGNS CAN BE COMPA RED WITH THE LIKE DESIGNS AND NOT WITH THE UNLIKE ONE. THEREFORE, THE LD. CIT(A), WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION AND THE SAME IS DELETED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 20TH JUNE, 2011. SD/- SD/- (H.L. KARWA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20TH JUNE, 2011 /SKR/ 7 COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE:M/S. GUJRANWALA JEWELLERS, JALANDHAR. 2. THE DY. C.I.T. CIR.III, JALANDHAR, 3. THE CIT(A), JALANDHAR. 4. THE CIT,JALANDHAR. 5. THE SR DR PTRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.