M/s Sood Packagers, Rajpura V. DCIT, Mandi Gobindgarh

ITA 564/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8959 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.564/CHD/2016 (ASSESSMENT YEAR : 2010-11) M/S SOOD PACKAGERS, VS. THE D.C.I.T., FOCAL POINT, RAJPURA. CIRCLE MANDI GOBINDGARH. PAN: AASFS2545N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK AGGARWAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 21.11.2016 DATE OF PRONOUNCEMENT : 28.11.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PATIALA DATED 15.3.2016 RELATING TO ASSE SSMENT YEAR 2010-11. 2. THE GROUNDS RAISED IN THE PRESENT APPEAL READ AS UNDER : 1. BECAUSE THE ID. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING INTEREST AMOUNTIN G TO RS.1434565/- PAID TO SPECIFIED PERSONS U/S 40A(2)(B ) ON THE GROUND THAT THE ASSESSEE IS PAYING INTEREST TO THE SAID SPECIFIED PERSONS @ 15% WHEREAS HE CHARGED INTE REST @ 2 12% FROM OTHER PERSONS, HOWEVER, THE AUTHORITIES B ELOW FAILED TO APPRECIATE THAT ON PERSONAL LOAN THE BANKS ARE C HARGING INTEREST @ 15.40%, THEREFORE THE ACTION OF THE AUTH ORITIES BELOW NEEDS TO BE SET ASIDE BEING ERRONEOUS. B). THAT ALTERNATIVELY AND WITHOUT PREJUDICE TO TH E ABOVE THE MAXIMUM LEAKAGE CALCULATED IS AT RS.51260/-, THEREF ORE THE ASSESSEE IS ALSO DISPUTES THE QUANTUM OF THE ADDITI ON CONFIRMED BY THE LD. CIT(A). 2. THAT THE ASSESSEE PRAYS FOR ANY CONSEQUENTIAL RE LIEF AND/OR LEGAL CLAIM ARISING OUT OF THIS APPEAL BEFORE THE D ISPOSAL OF THE SAME. 3. THAT THE ASSESSEE PRAYS FOR ANY ADDITION, DELETI ON, AMENDMENT AND MODIFICATION IN THE GROUNDS OF APPEAL BEFORE TH E DISPOSAL OF THE SAME IN THE INTEREST OF SUBSTANTIAL JUSTICE TO THE ASSESSEE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS FOUND THA T THE ASSESSEE HAD PAID INTEREST @ 15% TO PERSONS SPECIFI ED UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AMOUNTING TO RS.71,72,828/- AS PER TABLE AT PAGE 2 OF THE ASSESSMENT ORDER WHILE IT HAD CHAR GED INTEREST @ 12% FROM SPECIFIED PERSONS. WHEN CONF RONTED WITH THE SAME, THE ASSESSEE JUSTIFIED 15% RATE OF I NTEREST BY STATING THAT EVEN IN CASE BANKS RATE OF INTERES T CHARGED WAS 12.5% AND ON INCLUDING ADDITIONAL COST S INCURRED ON THEM BY WAY OF INCIDENTAL CHARGES OF INSURANCE, STOCK INSPECTION FEE, COLLATERAL SECURIT Y THE BANK RATE WOULD COME TO 15%.THE ASSESSEE ALSO STATE D 3 THAT UNSECURED LOAN GIVEN BY BANKS ON CREDIT CARRI ED A RATE OF 15%. FURTHER, THE ASSESSEE CONTENDED THAT THE PAYEE OF INTEREST WAS REFLECTING THE SAME IN ITS RE TURN OF INCOME PAYING TAXES ON THE SAME @ 30.9% IN MOS T OF THE CASES AND THE TOTAL REVENUE LOSS CAME TO ONLY RS.51,260/- ON ACCOUNT OF PAYING HIGHER RATE OF INT EREST TO SPECIFIED PERSONS. THE ASSESSING OFFICER REJECT ED ASSESSEES CONTENTION SINCE THE ASSESSEE HAD ITSEL F CHARGED INTEREST ON ADVANCES MADE TO SPECIFIED PERS ONS @ 12% AND ALSO GIVEN SUBSTANTIAL ADVANCES TO SISTER CONCERNS WITHOUT CHARGING INTEREST. HE, THEREFORE, ADDED THE INTEREST PAID ON UNSECURED LOANS TO PERSONS SPE CIFIED UNDER SECTION 40A(2)(B) OF THE ACT, OVER AND ABOVE 12%, AMOUNTING TO RS.14,34,565/-, AS BEING UNREASONABLE AND DISALLOWED THE SAME. 4. THE LD. CIT (APPEALS) UPHELD THE ORDER BY HOLDING THAT THE ASSESSEE HAD NOT ADDRESSED THE ISS UE PERTAINING TO PAYMENT OF EXCESS INTEREST TO SISTER CONCERNS. HE FURTHER HELD THAT THE ASSESSEE HAD NO T JUSTIFIED THE PAYMENT OF 15% RATE OF INTEREST TO IT S SISTER CONCERNS. THEREFORE, FOR WANT OF SATISFACTORY EXPL ANATION, THE ADDITION MADE WAS CONFIRMED. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED HIS ARGUMENTS MADE BEFORE LOWER AUTHORIT IES AND VEHEMENTLY STATED THAT 15% RATE OF INTEREST CHA RGED FROM SPECIFIED PERSONS WAS JUSTIFIABLE IN VIEW OF T HE RATE OF INTEREST CHARGED BY BANK ON UNSECURED LOANS I.E. ON 4 CREDIT CARDS AND FURTHER IN VIEW OF THE RATE OF INT EREST OF 12.5% CHARGED BY THE BANK WHICH DID NOT INCLUDE OTHER INCIDENTAL COSTS INCURRED SUCH AS COLLATERAL SECURI TY TO BE GIVEN TO THE BANK, INSURANCE TO BE GOT DONE, STOCK INSPECTION FEES, OTHER FORMALITIES TO BE COMPLETED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER ARGUED THA T THE RECIPIENTS OF THE IMPUGNED INTEREST HAD REFLECTED T HIS INCOME IN THEIR INCOME TAX RETURNS AND IN MOST OF T HE CASES HAD PAID TAXES @ 30.9%. THUS, THE LEARNED CO UNSEL FOR THE ASSESSEE ARGUED THAT THE PAYMENT WAS GENUIN E AND DID NOT CAUSE LOSS TO THE REVENUE AND HENCE THERE W AS NO REASON FOR MAKING ANY DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT. 6. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD. CIT (APPEALS) AND STATED THAT THE ASSESSEE HAVING HIMSELF PAID INTEREST @ 12% TO ITS SISTER CO NCERNS, THERE WAS NO JUSTIFIABLE REASON WITH THE ASSESSEE T O STATE THAT THE RATE OF 15% WAS REASONABLE FOR CHARGING IN TEREST FROM ITS SISTER CONCERNS. IN VIEW OF THE SAME, THE LD. DR ARGUED THAT THE ADDITION OF EXCESS IN PAID BY THE A SSESSEE TO SPECIFIED PERSONS HAD BEEN RIGHTLY UPHELD BY THE LD. CIT (APPEALS). 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. UNDENIABLY, THE ASSESSEE HAS NOT BEEN ABLE TO ESTAB LISH THE REASONABLENESS OF INTEREST PAID @ 15% TO SPECIF IED 5 PERSONS UNDER SECTION 40A(2)(B) OF THE ACT WHEN THE ASSESSEE HIMSELF IS CHARGING INTEREST ON LOANS AND ADVANCES GIVEN TO SPECIFIED PERSONS @ 12%. ON THIS ASPECT, WE ARE IN CONFORMITY WITH THE ORDER OF THE LD. CIT (APPEALS) BUT AT THE SAME TIME, WE FIND THAT THE AS SESSEE HAS BEEN CONSISTENTLY TAKING THE PLEA BEFORE THE LO WER AUTHORITIES THAT THERE IS MEAGER LOSS TO THE REVENU E ON ACCOUNT OF PAYING ALLEGED HIGHER RATE OF INTEREST T O SISTER CONCERNS SINCE THE MAXIMUM LENDERS FALL IN THE BRAC KET OF 30.9% I.E. THE MAXIMUM TAX BRACKET AND HAD PAID TAX ES ON THE INTEREST INCOME EARNED BY THEM FROM THE ASSE SSEE. THE ASSESSEE, THEREFORE, SUBMITTED THAT SINCE IT IS A TAX NEUTRAL EXERCISE, SECTION 40A(2)(B) OF THE ACT IS N OT APPLICABLE. COPIES OF ITRS OF THE LENDERS ALONGWIT H COMPUTATION OF INCOME WAS ALSO FILED BEFORE THE LOW ER AUTHORITIES, AS EVIDENCE OF THE SAME. WE FIND MERI T IN THIS CONTENTION OF THE ASSESSEE. THE HON'BLE PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT VS. SIYA RAM GARG (HUF) (2011) 237 CTR 321 HAS HELD THAT WHEN SISTER CONCERNS WERE PAYING TAXES AT THE SAME RATE AT WHIC H THE ASSESSEE IS BEING TAXED, IT PROVED THAT THERE WAS N O REASON FOR THE ASSESSEE TO SHOW HIGHER RATE OF PURC HASE MADE BY HIM FROM HIS SISTER CONCERNS AND, THEREFORE , NO CASE FOR MAKING ANY DISALLOWANCE UNDER SECTION 40A( 2)(B) OF THE ACT OF THE EXCESS PRICE PAID. THE RELEVANT PARA OF THE ORDER OF THE JURISDICTIONAL HIGH COURT IS AS FO LLOWS : 5. AS REGARDS QUESTION (II), THE AO MADE ADDITION U NDER S. 40A(2) OF THE ACT ON THE GROUND THAT THE ASSESSE E HAD 6 PAID HIGHER RATE TO ITS SISTER CONCERN WHILE PURCHA SING COTTON AND WASTE. THE CIT(A) UPHELD THE PLEA OF THE ASSESSEE THAT THE PAYMENT WAS NOT HIGHER THAN THE NO RMAL RATE. IT WAS HELD THAT THE GOODS PURCHASED AT LESSE R RATE WERE OF INFERIOR QUALITY. THE TRIBUNAL AFFIRMED THE SA ID FINDING AS UNDER : '15. ON THIS ISSUE, WE FIND THAT INDEED, THE DETAILS FIL ED BY THE ASSESSEE SHOWED THAT ITS SISTER CONCERNS WERE BE ING TAXED AT THE SAME RATE AT WHICH THE ASSESSEE WAS BE ING TAXED, PROVING THAT THERE WAS NO REASON FOR THE ASS ESSEE TO SHOW HIGHER RATE PURCHASES MADE BY THE ASSESSEE F ROM ITS SISTER CONCERNS. THE ASSESSEE'S SISTER CONCERN HA D OFFERED THEIR INCOME FROM SUCH SALES, WHICH FACT HAS NOT BEEN DISPUTED. THEREFORE, THE AO ERRED IN INVOKING THE PROVISIONS OF S. 40A (2)OF THE ACT AND THE LEARNED CIT (A) HAS CORRECTLY DELETED THE DISALLOWANCE.' 6. THE ABOVE FINDING BEING A FINDING OF FACT AND NOT BEIN G PERVERSE, WE DO NOT FIND ANY GROUND TO INTERFERE WITH THE SAME. 8. EVEN THE HON'BLE SUPREME COURT IN THE CASE OF CIT & ANR. VS. GLAXO SMITHKLINE ASIA (P) LTD. (2010 ) 236 CTR 113 DISMISSED THE SLP OF THE DEPARTMENT ON THE ISSUE OF SECTION 40A(2)(B) OF THE ACT SINCE THE ENT IRE EXERCISE WAS FOUND TO BE REVENUE NEUTRAL. THE HON' BLE SUPREME COURT AT PARAS 1 AND 2 OF HIS ORDER HELD AS FOLLOWS : IN THIS SPECIAL LEAVE PETITION, THE KEY QUESTION W HICH AROSE FOR DETERMINATION BEFORE THE AUTHORITIES BELO W WAS, WHETHER THE ASSESSEE-COMPANY AND ITS SERVICE PROVIDER (GSKCH) ARE RELATED COMPANIES IN TERMS OF S. 40A(2) OF THE IT ACT, 1961 ? IF THE ANSWER TO THE S AID QUESTION WAS TO BE IN THE AFFIRMATIVE, THEN THE NEX T 7 QUESTION ON MERITS WHICH AROSE FOR DETERMINATION WA S, WHETHER ALLOCATION OF CROSS-CHARGES BY THE ASSESSEE WAS THE CORRECT TEST APPLIED BY THE ASSESSEE ? IN OTHER WORDS, WHETHER ALLOCATION OF CROSS-CHARGES SHOULD BE ALLOW ED OR DISALLOWED BY THE DEPARTMENT ? THE AUTHORITIES BELO W HAVE RECORDED A CONCURRENT FINDING THAT THE SAID TW O COMPANIES ARE NOT RELATED COMPANIES UNDER THE SAID SECTION. BEING AGGRIEVED BY THE SAID DECISION, THE MATTER HAS COME TO THIS COURT BY WAY OF SPECIAL LEAVE PETI TION FILED AT THE INSTANCE OF THE DEPARTMENT. IN THIS SP ECIAL LEAVE PETITION, WE ARE CONCERNED WITH ASST. YR. 200 1-02. 2. HAVING GONE THROUGH THE RELEVANT MATERIAL PLACED BEFORE US CONCERNING ASST. YR. 2001-02, WE ARE OF T HE VIEW THAT, AS FAR AS THIS SPECIAL LEAVE PETITION IS CONC ERNED, NO INTERFERENCE IS CALLED FOR AS THE ENTIRE EXERCISE I S A REVENUE NEUTRAL EXERCISE. HENCE, THIS SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT STANDS DISMISSED. HOWEVER, WE MAY CLARIFY THAT PROCEEDINGS ARE PENDING EVEN TODAY AT VARIOUS STAGES FOR DIFFERENT ASSESSMENT YEARS BEFOR E THE AUTHORITIES UNDER THE IT ACT. WE EXPRESS NO OPINION WITH REGARD TO THOSE PROCEEDINGS. HOWEVER, WE DIRECT THE AUTHORITIES TO EXAMINE AS TO WHETHER THERE IS ANY L OSS OF REVENUE IN ANY OF THE ASSESSMENT YEARS IN QUESTION. IF, HOWEVER, THE AUTHORITIES FIND THAT THE EXERCISE IS A REVENUE NEUTRAL EXERCISE, THEN THE MATTER MAY BE DE CIDED ACCORDINGLY. WE SAY NO MORE IN THAT REGARD. 9. IN THE PRESENT CASE, WE FIND THAT THE ARGUMENTS OF THE ASSESSEE REGARDING THE TAX NEUTRALITY OF THE IMPUGNED TRANSACTIONS HAS NOT BEEN ADDRESSED BY THE LOWER AUTHORITIES. IN VIEW OF THE AFORESTATED JUDG MENTS OF THE JURISDICTIONAL HIGH COURT AND THE APEX COURT, W E CONSIDER IT FIT TO RESTORE THE MATTER BACK TO THE F ILE OF THE LD. CIT (APPEALS) TO DECIDE THE ISSUE OF DISALLOWAN CE OF 8 INTEREST UNDER SECTION 40A(2)(B) OF THE ACT IN THE LIGHT OF THE FACTS OF THE CASE AND AFTER CONSIDERING THE JUD GMENT OF THE APEX COURT AND JURISDICTIONAL HIGH COURT CITED ABOVE AND THEREAFTER DECIDED THE MATTER IN ACCORDANCE WIT H LAW. WE MAY ADD THAT THE ASSESSEE BE GIVEN DUE OPPORTUNI TY OF HEARING. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH NOVEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH