M/s P.C.G. Bearing & Mill Stores, RAJKOT-GUJARAT V. The Assistant Commr. Income Tax,Cir-2, RAJKOT-GUJARAT

ITA 576/RJT/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1296 (ITAT-RAJKOT)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RANJIT LALCHANDANI
• Keywords: Fair market value
• Section: 143(3); 92F

Judgement Text

ITA NO. 576 / RJT/201 5 ASSESSMENT YEAR: 20 10 - 11 PA GE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (CONDUCTED THROUGH E - COURT AT AHMEDABAD) BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO. 576 /RJT/201 5 ASSESSMENT YEAR: 20 10 - 11 M/S. P.C.G. BEAR ING AND MILL STORES VS. ASST. COMMISSIONER OF INCOME GAREDIYA KUVA ROAD, TAX, CIRCLE - 2 , RAJKOT. RAJKOT . [PAN: AA C FP 4740 J ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RANJIT LALCHANDANI, ADVOCATE RESPONDENT BY : SHRI PRASOON KABRA , D.R. DATE OF HEARING : 0 7 .04.2016 DATE OF PRONOUNCEMENT : 22 .04.2016 O R D E R PER S.S. GODARA, J.M. TH IS ASSESSEE S APPEAL FOR A SSESSMENT Y EAR 2010 - 11 , ARISE S FROM ORDER OF THE CIT(A) - 2 , RAJKOT DATED 0 9 . 10 .201 5 , PASSED IN CASE NO.CIT(A) - 2/0003 /13 - 14 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. ASSESSE E S SOLE SUBSTANTIVE GROUND CHALLENGES THE CIT (A) S ORDER CONFIRMING ASSESSING OFFICER S ACTION DISALLOWING CLAIM FOR INTEREST ON DEPOSITS UNDER SECTION 40A(2)(B) OF THE ACT AMOUNTING TO RS.6,13,753/ - . 3 . THIS ASSESSEE FIRM TRADES IN BEARINGS, TOOLS AND MILLS STORES ON SEMI WHOLESALE BASIS. IT CLAIMED INTEREST EXPENSES TO THE TUNE OF RS.35,79,506/ - IN ITS PROFIT & LOSS ACCOUNT ON OWN CAPITAL FUNDS OF RS .3,11,69,084/ - AND UNSECURED LOANS OF RS.45,91,905/ - AS INCURRED IN THE CASE OF ALLEGED RELATED PARTIES. THE ASSESSEE STRONGLY JUSTIFIED IT S INTEREST CLAIM AS PAID @ 12% TO PARTNERS AND @ 15% TO DEPOSITORS BY TERMING THE SAME ITA NO. 576 / RJT/201 5 ASSESSMENT YEAR: 20 10 - 11 PA GE 2 OF 4 TO BE AS PER MARKET RATES. IT PLACED ON RECORD BANK INTEREST RATE AS WELL. WE FIND FROM THE ASSESSMENT ORDER DATED 11.03.2013 THAT THE ASSESSING OFFICER MADE A SIMPLE OBSERVATION THAT THE ASSESSEE HAD IN FACT PAID THE IMPUGNED INTEREST SUMS IN VIOLATION OF SECTION 40A (2)(B) OF THE ACT AND MADE THE IMPUGNED DISALLOWANCE OF RS.6,13,753/ - . THE CIT(A) CONFIRMS ASSESSING OFFICER S ACTION. 4 . WE HAVE HEARD BOTH THE PARTIES. CASE FILES PERUSED. RELEVANT FACTS NARRATED IN THE PRECEDING PARAGRAPHS ARE NOT REPEATED FOR THE SAKE OF BREVITY. THERE IS NO DISPUTE ABOUT THE FACT THAT ASSESSEE HAS PAID IMPUGNED INTEREST SUMS TO IT S PARTNERS HEREINABOVE. BOTH THE LOWER AUTHORITIES INVOKED SECTION 40 A(2)(B) OF THE ACT FOR CALLING THE SAME TO BE EXCESSIVE AND UNREASONABLE. WE COME TO THIS STATUT ORY PROVISION INVOLVING THE CRUCIAL EXPRESSION : - 40A. (1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THIS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . (2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB - SECTION, AND THE [ASSESSING] OFFICER IS OF OPINION THAT SUCH E XPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. [ PROVIDED THAT NO DISALLOWANCE, ON ACCOUNT OF ANY EXPENDITURE BEING EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FA IR MARKET VALUE, SHALL BE MADE IN RESPECT OF A SPECIFIED DOMESTIC TRANSACTION REFERRED TO IN SECTION 92BA , IF SUCH TRANSACTION IS AT ARM'S LENGTH PRICE AS DEFINED IN CLAUSE (II) OF SECTION 92F . ] (B) THE PERSONS REFERRED TO IN CLAUSE (A) ARE THE FOLLOWING, NAMELY: - (I) WHERE THE ASSESSEE IS AN INDIVIDUAL ANY RELATIVE OF THE ASSESSEE; ITA NO. 576 / RJT/201 5 ASSESSMENT YEAR: 20 10 - 11 PA GE 3 OF 4 (II) WHERE THE ASSESSEE IS A COMPANY, ANY DIRECTOR OF THE FIRM, ASSOCIATION OF PERSONS OR CO MPANY, PARTNER OF THE HINDU UNDIVIDED FAMILY FIRM, OF MEMBER IF THE ASSOCIATION OR FAMILY, OR FAMILY, OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (III) ANY INDIVIDUAL WHO HAS A SUBSTANTIAL INTE REST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE, OR ANY RELATIVE OF SUCH INDIVIDUAL; (IV) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HINDU UNDIVIDED FAMILY HAVING A SUBSTANTIAL INTEREST IN THE BUSINE SS OR PROFESSION OF THE ASSESSEE OR ANY DIRECTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY, OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (V) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HINDU UNDIVIDED FAMILY OF WHICH A DIRECTOR, PARTNER OR MEMBER, AS THE CASE MAY BE, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE; OR ANY DIRECTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY OR ANY R ELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (VI) ANY PERSON WHO CARRIES ON A BUSINESS OR PROFESSION, - (A) WHERE THE ASSESSEE BEING AN INDIVIDUAL, O R ANY RELATIVE OF SUCH ASSESSEE, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THAT PERSON; OR (B) WHERE THE ASSESSEE BEING A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HINDU UNDIVIDED FAMIL Y, OR ANY DIRECTOR OF SUCH COMPANY, PARTNER OF SUCH FIRM OR MEMBER OF THE ASSOCIATION OR FAMILY, OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THAT PERSON. EXPLANATION. - FOR THE PURPOSES O F THIS SUB - SECTION, A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A BUSINESS OR PROFESSION, IF, - (A) IN A CASE WHERE THE BUSINESS OR PROFESSION IS CARRIED ON BY A COMPANY, SUCH PERSON IS, AT ANY TIME DURING THE PREVIOUS YEAR, THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) CARRYING NOT LESS THAN TWENTY PER CENT OF THE VOTING POWER; AND (B) IN ANY OTHER CASE, SUCH PERSON IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE PROFITS OF SUCH BUSINESS OR PROFESSION. ITA NO. 576 / RJT/201 5 ASSESSMENT YEAR: 20 10 - 11 PA GE 4 OF 4 5 . WE REVERT BACK TO FACTS OF THE INSTANT CASE. THE ASSESSEE S STAND THROUGHOUT SUPPORTS IT S INTEREST OUTGO TO BE AS PER THE MARKET RATE IN VIEW OF BANKS CERTIFICATE PLACED ON RECORD (SUPRA). IT EMERGES THAT THE ASSESSING OFFICER HAD NOWHERE CONTROVERTED THE SAME BY WAY OF DRAWING C OMPARISON TO THE PREVALENT MARKET RATE OF INTEREST IN IDENTICAL FACTS. WE ARE MINDFUL OF THE FACT THAT THIS DISALLOWANCE PROVISION APPLIES ONLY IN CASE OF ANY EXCESSIVE COMPONENT OF INTEREST ETC. VIS - A - VIS MARKET PRICE THEREOF AND DOES NOT INVOLVE DISALLOWANCE OF WHOLE OF THE AMOUNT. A CO - ORDINATE BENCH OF THE TRIBUNAL IN ITA NOS.2055 AND 20 5 6/AHD/2008 - ACIT VS. M/S. BUD H ALAL & CO . DECIDED ON 07.01.2011 ALSO PROPOUNDS THE SAME PRINCIPLES. WE OBSERVE IN THESE FACTS AND CIRCUMSTANC ES THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN INVOKING THE IMPUGNED 40A (2)(B) DISALLOWANCE WITHOUT FIRST ASCERTAINING ANY EXCESSIVE AND UNREASONABLE COMPONENT IN THE ASSESSEE S INTEREST OUTGO AS STIPULATED IN THE STATUTORY PROVISIONS ITSELF. THE SAME I S ACCORDINGLY DELETED ON THIS COUNT ALONE. 6 . THIS ASSESSEE S APPEAL SUCCEEDS. PRONOUNCED IN THE OPEN C OURT TODAY ON TH E 22 ND DAY OF APRIL, 2016. SD/ - SD/ - ANIL CHATURVEDI S.S. GODARA (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 22 ND DAY OF APRIL , 2016 PBN/ * COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTR AR INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT