The ITO, Ward-1(3), Ahmedabad V. M/s. Crystal Ceramic Industries Pvt. Ltd., Ahmedabad

ITA 526/AHD/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6980 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 263

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO. 526/AHD/2016 / ASSESSMENT YEAR: 2009-10 ITO, WARD-1(1)(3) AHMEDABAD. VS M/S.CRYSTAL CERAMIC INDUSTRIES P.LTD. B-19, VISHNU PARK SOCIETY OPP: BETHAK B/H. BHAGYODAYA TENAMENTS NARODA, AHMEDABAD 382 345. / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI VINOD TANWANI, SR.DR ASSESSEE BY : SHRI TUSHAR HEMANI, AR / DATE OF HEARING : 24/04/2019 /DATE OF PRONOUNCEMENT : 25/04/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)- 3, AHMEDABAD DATED 7.1.2016 PASSED FOR THE ASSTT.YEAR 2009-10. 2. SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE LD .CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.66,96,418/- WHICH W AS DISALLOWED BY THE AO OUT OF INTEREST EXPENDITURE CLAIMED BY THE ASSES SEE. 3. BRIEF FACTS OF THE CASE ARE THAT AN ASSESSMENT O RDER UNDER SECTION 143(3) WAS PASSED ON 28.11.2011 WHEREBY TOTAL INCOM E OF THE ASSESSEE WAS DETERMINED AT RS.68,09,756/-. THIS ORDER WAS H ELD TO BE ERRONEOUS ITA NO.526 /AHD/2016 - 2 - AND PREJUDICIAL TO THE INTEREST OF THE REVENUE BY T HE LD.COMMISSIONER VIDE ORDER DATED 7.3.2014 PASSED UNDER SECTION 263 OF THE ACT. THE LD.AO THEREAFTER PASSED FRESH ASSESSMENT ORDER IN P URSUANCE OF SECTION 263 ORDER ON 30.6.2017. IN THIS ASSESSMENT ORDER, THE LD.AO NOTICED THAT THE ASSESSEE TOOK LOAN/DEPOSITS FROM 125 PARTIES TO WHOM IT PAID INTEREST AT RATE RANGING FROM 10% TO 18%. THE LD.A O ALLOWED INTEREST AT THE RATE OF 10% ON ALL THESE DEPOSITS AND DISALLOWE D THE BALANCE. HE MADE ADDITION OF RS.77,80,279/-. IN THE OPINION OF THE AO EXCESS INTEREST OF RS.77,80,729/- DESERVES TO BE DISALLOWE D UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT. DISSATISFIED WITH THE DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). THE ASSESSEE CONTENDED THAT OUT OF 125 PARTIES, 104 PARTIES DID NOT FALL WITHIN THE AMBIT OF SUB-CLAUSE (B) OF SECTION 40A(2). THUS, T HE INTEREST QUA THEM CANNOT BE DISALLOWED ON THE GROUND OF THEIR POSITIO N/ASSOCIATION WITH THE MANAGEMENT. IF SOME EXCESS BENEFITS WERE EXTE NDED TO THEM, THEN THEIR CASE IS TO BE EXAMINED WITHIN THE SCOPE OF SE CTION 36(1)(III) OF THE ACT. IN THAT CASE JURISDICTION WITH THE AO HAS TO FIND OUT WHETHER INTEREST BEARING FUNDS WERE USED FOR THE PURPOSE OF BUSINESS OR NOT. THE RATE OF INTEREST AT 18% ON THE LOANS TAKEN FROM OPE N MARKET CANNOT BE TERMED ON HIGHER SIDE. THE LD.CIT(A) HAS EXAMINED THIS ASPECT AND REPRODUCED THE TABLE PERTAINING TO 37 PARTIES. THE LD.CIT(A) HAS OBSERVED THAT AS FAR AS LOANS TAKEN FROM PERSONS FA LLING WITHIN THE SUB- CLAUSE (B) OF SECTION 40A(2), THE INTEREST RATE OUG HT TO BE ALLOWED AT 15% INSTEAD OF 18% PAID BY THE ASSESSEE, HENCE, PARTL Y CONFIRMED THE DISALLOWANCE. IN OTHER WORDS, A DISALLOWANCE OF RS .10,83,861/- IS BEING CONFIRMED AND REMAINING DELETED. ITA NO.526 /AHD/2016 - 3 - 4. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SUB-CLAUSE (B) OF SECTION 40 A(2) PROVIDES CATEGORIES OF PERSONS WHO CAN BE CONSIDERED AS RELATED PARTIES ON ACCOUNT OF THEIR RELATIONSHIP/ASSOCIATION WITH THE MANAGEMENT. IF A N ASSESSEE HAS ANY TRANSACTION WITH THE RELATED PARTY, THEN IT IS TO B E EXAMINED BY THE AO UNDER SECTION 40A(2)(B). IF THE AO ARRIVED AT A CO NCLUSION THAT SERVICES/GOODS OR ANY OTHER FACILITIES OBTAINED FRO M SUCH RELATED PARTIES, BY MAKING EXCESS PAYMENT THAN THE MARKET RATE, THEN SUCH EXCESS PAYMENT WOULD NOT BE ALLOWED TO THE ASSESSEE AS A D EDUCTION. THE CASE OF THE ASSESSEE IS THAT OUT OF 125 PARTIES, TO WHOM IT HAS PAID INTEREST ON THE LOANS/DEPOSITS, 104 DID NOT FALL IN THE CATEGOR Y OF RELATED PARTIES AS PROVIDED IN SUB-CLAUSE (B) OF SECTION 40A(2). THE REFORE, ON SUCH PAYMENT OF INTEREST, SECTION 40A(2)(B) IS NOT APPLI CABLE. ITS CLAIM WAS TO BE EXAMINED WITHIN THE SCOPE OF SECTION 36(1)(III). THE AO HAS NO WHERE PROVIDED ANY MATERIAL ON RECORD DEMONSTRATING THE F ACT THESE LOANS WERE NOT USED FOR THE PURPOSE OF BUSINESS. THESE W ERE OBTAINED FROM UNRELATED PARTIES, AND THEREFORE, INTEREST EXPENDIT URE CANNOT BE DISALLOWED WITH THE AID OF SECTION 40A(2)(B). THE LD.CIT(A) HAS EXAMINED THIS ASPECT ELABORATELY. BEFORE US, DURIN G THE COURSE OF HEARING, THE LD.COUNSEL FOR THE ASSESSEE RELIED UPO N THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. S ARJAN REALITIES LTD., 50 TAXMANN.COM52 (GUJ). COPY OF THE DECISION HAS B EEN PLACED O0N RECORD. SIMILARLY, HE ALSO RELIED UPON THE DECISI ON OF ITAT, AHMEDABAD BENCH IN THE CASE OF JYOTI ENTERPRISE VS. DCIT, ITA NO.750/AHD/2012 ORDER DATED 21.10.2015 WHEREIN TRIBUNAL TREATED THE PAYMENT OF INTEREST AT THE RATE OF 18% TO RELATIVES AS REASONABLE RATES AND NOT EXCESSIVE FOR MAKING ANY DISALLOWANCE. ON DUE CONSIDERATION OF ALL THESE FACTS, WE ITA NO.526 /AHD/2016 - 4 - FIND THAT THE AO WAS UNABLE TO MAKE OUT A CASE THAT INTEREST PAID TO UNRELATED PARTIES CAN BE DISALLOWED UNDER SECTION 4 0A(2)(B) OF THE ACT. DISALLOWANCE UNDER THIS SECTION CAN BE MADE IF SOME UNDUE BENEFIT IS BEING EXTENDED TO RELATED PARTIES AS CONTEMPLATED I N SUB-CLAUSE (B). THE LD.CIT(A) HAS ALREADY RESTRICTED THE DISALLOWANCE QUA PAYMENT MADE TO RELATED PARTIES. WE HAVE BEEN INFORMED THAT THE AS SESSEE HAS NOT CHALLENGED THAT DISALLOWANCE. THEREFORE, TAKING IN TO CONSIDERATION WELL REASONED ORDER OF THE LD.CIT(A), WE DO NOT FIND ANY ERROR IN IT. THE APPEAL OF THE REVENUE IS DEVOID OF ANY MERIT, ACCOR DINGLY, IT IS DISMISSED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 25 TH APRIL, 2019. SD/- SD/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER