UTTAM POLYRUBS INDIA P LTD., Jaipur V. ACIT, Alwar

ITA 570/JPR/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5411 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 04-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA SINGH CIT DHK
• Keywords: Question of law

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH YFYR DQEKJ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] Y S[KK LNL; DS LE{K BEFORE: SHRI VIKRAM SINGH YADAV, AM & SHRI LALIET K UMAR, JM VK;DJ VIHY LA-@ ITA NO.570/JP/15 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S UTTAM POLYRUBS INDIA (P) LTD., G - 1060 PHASE-III, RIICO INDUSTRIAL AREA, BHIWADI, ALWAR CUKE VS. THE ACIT, CIRCLE - 2, ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACU 4543 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJENDRA SINGH (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 31.03.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 18/04/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), ALWAR DATED 27.04.2015 WHEREIN THE ASSESSEE HAS TAKEN FOL LOWING GROUNDS OF APPEAL: THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW CONFI RMING THE DISALLOWANCE OF RS. 2,26,176/- ON ACCOUNT OF INTEREST ON UNSECUR ED LOANS PAID IN EXCESS OF 18% TO THE PERSONS SPECIFIED U/S 40A(2)(B) OF TH E IT ACT. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY HAS PAID INTEREST AT THE RATE OF 21% ON UNSECURED LOANS TO T HE PERSONS SPECIFIED U/S 40A(2)(B). THE AO HAS FOUND THE SAME TO BE EXCESSI VE AND HAS DISALLOWED INTEREST PAID IN EXCESS OF 18% AND MADE AN ADDITION OF RS. 2,26,176/- IN THE HANDS OF THE APPELLANT. ITA NO. 570/JP/15 M/S UTTAM POLYRUBS INDIA (P) LTD. VS. ACIT, CIRCLE -2, ALWAR 2 2.1 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD CIT(A) WHO HAS SUSTAINED THE ADDITION AND HIS FINDI NGS ARE REPRODUCED AS UNDER: I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE AN D FIND THAT AO HAS BEEN FAIR AND JUST IN CONSIDERING THE INTEREST RATE OF 18% IN THE CASE OF SPECIFIED PERSONS AS AGAINST THE INTEREST RATE OF 14-15% CHAR GED BY THE BANKS ON LOANS. THE RATE OF BANK INTEREST HAS BEEN WELL ACCEPTED AN D WAS ALSO STATED BY THE APPELLANT IN THE REPLY FILED IN THE COURSE OF ASSES SMENT PROCEEDINGS. CORPORATE GOVERNANCE NORMS REQUIRE THE TRANSACTIONS BETWEEN T HE COMPANY AND THE RELATED PARTIES (PERSONS SPECIFIED U/S 40A(2)(B) OF THE IT ACT.) TO BE CONDUCTED AT ARMS LENGTH. THEREFORE, AO WAS JUSTIFIED AND RE ASONABLE IN GIVING A PREMIUM OF 3-4% OVER AND ABOVE THE BANK RATE OF INT EREST ON THE LOANS TAKEN FROM THE RELATED PARTIES. 2.2 DURING THE COURSE OF HEARING, THE LD AR SUBMITT ED THAT THE APPELLANT HAS TAKEN UNSECURED LOANS FROM THE SPECIFIED PERSONS AN D SUCH UNSECURED LOANS ALWAYS CARRY A HIGHER RATE OF INTEREST AS COMPARED TO LOANS TAKEN FROM BANKS AND FINANCIAL INSTITUTIONS WHICH ARE SECURED THROUG H HYPOTHECATION/CHARGE ON THE ASSETS. FURTHER, THE PREVAILING MARKET RATE OF INTEREST ON UNSECURED LOANS WAS 24% AND THE APPELLANT HAS PAID ONLY 21% WHICH I S QUITE REASONABLE. FURTHER, THE LD AR SUBMITTED THAT THE DECISION OF H ONBLE GUJARAT HIGH COURT IN CASE OF ADITYA MEDISALES LTD. IT APPEAL NO. 559 OF 2009 DATED 4.5.2010 IS DIRECTLY APPLICABLE IN THE PRESENT CASE AS THE TRAN SACTIONS IN THAT CASE WERE WITH THE RELATED PARTIES/SPECIFIED PERSONS U/S 40A( 2)(B) OF THE IT ACT. ALSO, OUR ATTENTION WAS DRAWN TO THE DECISION OF JAIPUR BENCH IN CASE OF RAM AVTAR GARG (ITA NO. 58/JP/2010). 2.3 THE LD DR SUPPORTED THE ORDER OF THE LOWER AUTH ORITIES AND IN SUPPORT, DRAWN ATTENTION OF THE BENCH TO THE DECISION OF HON BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF RAMESH CHAND(HUF) V. CIT 217 TAXMAN 75. 2.4 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS AND THE PERUSED THE MATERIAL ON RECORD. IT IS NOTED THAT DISALLOWANCE OF RS. 2,26,176/- HAS BEEN MADE BY THE AO ON ACCOUNT OF EXCESSIVE INTEREST @ 2 1% PAID TO THE PERSONS SPECIFIED U/S 40A(2)(B) OF THE IT ACT. THE AO THER EAFTER GAVE A SHOW CAUSE ITA NO. 570/JP/15 M/S UTTAM POLYRUBS INDIA (P) LTD. VS. ACIT, CIRCLE -2, ALWAR 3 NOTICE TO THE APPELLANT AS TO WHY THE INTEREST PAYM ENT MADE TO SPECIFIED PERSONS ON UNSECURED LOANS BE NOT RESTRICTED TO 18% AND THE EXCESSIVE PAYMENT OF 3% INTEREST BE DISALLOWED. IT IS THUS N OTED THAT THE AO AT THE TIME OF ISSUANCE OF SHOW-CAUSE HAS NOT BROUGHT ON RECORD ANY BASIS OR JUSTIFICATION FOR SUGGESTING RATE OF INTEREST @ 18% AS REASONABLE RATE OF INTEREST. SUBSEQUENTLY, BASED ON REPLY FILED BY THE APPELLANT , THE AO STATED THAT THE APPELLANT HAS ITSELF CONFIRMED THE FACT THAT EVEN T HE MAXIMUM RATE OF INTEREST ON BANK LOANS AMOUNTS TO 18% ON CUMULATIVE BASIS AN D HE ACCORDINGLY CONFIRMED THE DISALLOWANCE OF INTEREST IN EXCESS OF 18%. HERE, WHAT NEEDS TO BE APPRECIATED IS THAT THE AO AND LD CIT(A) HAVE FA ILED TO APPRECIATE THE DISTINCTION BETWEEN A SECURED LOAN AND AN UNSECURED LOAN. THE SECURED LOAN COMPARATIVELY CARRIED A LOWER RISK ELEMENT AS COMPA RED TO AN UNSECURED LOAN AND BASIS THE RISK ASSESSMENT AND OTHER CONSIDERATI ONS, IT TYPICALLY CARRIED A LOWER RATE OF INTEREST. IN THE INSTANT CASE, THE A PPELLANT HAS TAKEN UNSECURED LOAN AND AN APPROPRIATE COMPARISON WOULD HAVE BEEN THE RATE PREVALENT IN THE MARKET VIS-A-VIS UNSECURED LOAN. APPARENTLY, THE A PPELLANT HAS STATED THAT THE PREVAILING MARKET RATE OF INTEREST ON UNSECURED LOA NS WAS 24%. HOWEVER, NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO SUG GEST WHAT THE APPELLANT HAS STATED TO BE INCORRECT OR THERE IS A BETTER COM PARISON WHICH IS AVAILABLE. WE HAVE GONE THROUGH THE JUDGEMENT OF HONBLE PUNJA B AND HARYANA HIGH COURT IN CASE OF RAMESH CHAND (HUF) (SUPRA). IN TH AT CASE, ADDITION WAS MADE IN APPELLANT'S CASE BECAUSE OF HIGHER RATE OF INTER EST PAID BY APPELLANT TO HIS MOTHER AS AGAINST MARKET RATE. THE HIGH COURT CONF IRMED THE ADDITION ON THE GROUND THAT SINCE TRANSACTION IN QUESTION WAS NOT A GENUINE AND BONA FIDE TRANSACTION, TRIBUNAL WAS JUSTIFIED IN CONFIRMING A DDITION OF INTEREST PAID ON OLD LOAN AT HIGHER RATE OF INTEREST BY APPLYING PROVISI ONS OF SECTION 40A(2)(B) AND NO QUESTION OF LAW ARISES. IN THE INSTANT CASE, TH ERE IS NO SUCH ALLEGATION OR FINDING OF THE LOWER AUTHORITIES THAT THE SUBJECT L OAN TRANSACTION WAS NOT A GENUINE TRANSACTION. HENCE, THIS DECISION IS NO HE LP TO THE REVENUE. WE HAVE ALSO GONE THROUGH THE DECISION OF HONBLE G UJARAT HIGH COURT IN CASE OF ADITYA MEDISALES LTD (SUPRA) AND FINDS THAT THE SAME SUPPORT THE CASE OF THE APPELLANT. IN THAT CASE, THE COURT HAS NOTED THAT THE INTEREST ON UNSECURED BORROWINGS IS ALWAYS HIGHER THAN THE RATE OF INTERE ST PAID TO THE BANKS OR ITA NO. 570/JP/15 M/S UTTAM POLYRUBS INDIA (P) LTD. VS. ACIT, CIRCLE -2, ALWAR 4 FINANCIAL INSTITUTION FROM WHERE THE LOANS RAISED A RE SECURED LOAN, AND HAVE ACCORDINGLY ACCEPTED INTEREST PAID TO SUN PHARMACEU TICALS AT THE RATE OF 24% TO BE REASONABLE. IN LIGHT OF ABOVE, WE ARE OF THE VIEW THAT LD CIT(A ) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS. 2,26,176/- ON AC COUNT OF INTEREST PAID BY THE APPELLANT TO SPECIFIED PERSONS U/S 40A(2)(B) OF THE IT ACT. HENCE, GROUND OF THE APPELLANT IS ALLOWED. IN THE RESULT THE APPEAL FILED BY THE APPELLANT IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/0 4/2016. SD/- SD/- ( LALIET KUMAR ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 18/ 04 /2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S UTTAM POLYRUBS INDIA PVT. L TD. ALWAR 2. THE RESPONDENT- THE ACIT, CIRCLE-2, ALWAR 3. THE CIT(A) ALWAR 4. THE CIT-, ALWAR 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 570 /JP/15) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR