Yash Pal Gupta, Ludhiana V. ACIT, Ludhiana

ITA 577/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60964 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: Y K SOOD
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.577/CHD/2012 (ASSESSMENT YEAR:2008-09) YASH PAL GUPTA, VS. THE A.C.I.T., C/O M/S BALDEV RAJ RAM MURTI, CIRCLE V, LOHA MANDI, LUDHIANA. LUDHIANA. PAN: AARPG3936G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI Y.K.SOOD RESPONDENT BY : SHRI N.K.SAINI, DR DATE OF HEARING : 12.07.2012 DATE OF PRONOUNCEMENT : 31.07.2012 O R D E R PER SUSHMA CHOWLA, J.M. : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA D ATED 14.03.2012 RELATING TO ASSESSMENT YEAR 2008-09 AGAINST THE ORD ER PASSED U/S 143(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER: 1. THAT THE CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ACTION OF THE ACIT OF INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961. 2. THAT WHILE SUSTAINING THE ACTION OF THE ACIT MENTIONED IN GROUND NO.1 ABOVE THE CIT(A) HAS WRONGLY ESTIMATED THE FAIR MARKET RATE OF INTEREST OF 15% AS AGAINST 12% ESTIMATED BY THE ACIT. THAT WHILE MAKING ESTIMATE BOTH ACIT & CIT(A) FAILED TO MAKE ANY MARKET ENQUIRIES. 3. THAT THE CIT(A) HAS WRONGLY SUSTAINED THE DISALLOWANCE OF THE INTEREST OF RS.172200/- OUT OF RS.344400/- MADE BY THE ACIT OUT OF 2 THE TOTAL INTEREST OF RS.1033200/- PAID TO AND CLAIMED BY THE ASSESSEE @ 18%. 3. THE ONLY ISSUE RAISED VIDE GROUND NO.1 TO 3 BY T HE ASSESSEE IS AGAINST THE DISALLOWANCE OF INTEREST TOTALING RS.1, 72,200/-. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOT ED THAT THE ASSESSEE HAD PAID INTEREST ON UNSECURED LOANS AT RA TES VARYING FROM 9% TO 18%. THE ASSESSEE HAD PAID INTEREST @ 18% TO ALL HIS FAMILY MEMBERS WHO WERE COVERED PERSONS UNDER SECTION 40A( 2)(B) OF THE ACT. AS AGAINST THE SAME, THE ASSESSEE HAD PAID IN TEREST TO OTHERS AT LESSER RATE. THE LIST OF THE FAMILY MEMBERS AND THE OTHERS IS PLACED AT PAGE 4 OF THE ASSESSMENT ORDER UNDER PARA 5. THE ASSESSEE WAS REQUISITIONED TO EXPLAIN WHY RATE OF I NTEREST PAID TO FAMILY MEMBERS BE NOT RESTRICTED TO 12% IN VIEW OF THE FACT THAT TO OTHER PERSONS, THE INTEREST WAS PAID AT THE RATE VA RYING FROM 9% TO 18% AND ALSO THE BANK RATE WAS 12%. THE REPLY OF T HE ASSESSEE IS INCORPORATED AT PAGE 5 OF THE ASSESSMENT ORDER UNDE R WHICH IT WAS EXPLAINED THAT THE INTEREST PAID TO THE FAMILY MEMB ERS WAS AT PAR WITH WHAT WAS PAID IN THE MARKET. IT WAS EXPLAINED THAT THE INTEREST ONLY IN RESPECT OF ONE PERSON WAS PAID @ 1 2% PER ANNUM WHICH WAS INCREASED TO 15% PER ANNUM AND TO THE OTH ERS @ 18% PER ANNUM. 5. IN THE SECOND REPLY DATED 1.11.2010 INCORPORATED AT PAGE 5 OF THE ASSESSMENT ORDER. THE ASSESSEE ACKNOWLEDGED TH AT THE INTEREST PAID ON UNSECURED CREDITORS VARIED FROM 9% TO 18% P ER ANNUM. THE RATE VARIED BECAUSE OF VARIOUS FACTORS. IN RESPECT OF RATE OF INTEREST PAYABLE TO THE BANK AS COMPARED TO RATE OF INTEREST PAYABLE ON UNSECURED LOANS, THE PLEA OF THE ASSESSEE WAS TH AT THE BANK LOAN WAS SECURED AND HENCE LOWER RATE OF INTEREST. THE ASSESSING OFFICER IN VIEW OF THE PROVISIONS OF SECTION 40A(2) (A) OF THE ACT 3 OBSERVED THAT THE ASSESSEE HAD PAID INTEREST ON UNS ECURED LOANS AT HIGHER RATE TO HIS FAMILY MEMBERS AS COMPARED TO TH E OTHERS AND RESTRICTED THE RATE OF INTEREST TO 12% ONLY, RESULT ING IN DISALLOWANCE OF RS.3,44,400/-. 6. THE CIT (APPEALS) UPHELD THE ORDER OF THE ASSESS ING OFFICER. HOWEVER, APPLIED INTEREST RATE OF 15% AS MARKET RAT E AS THE ASSESSEE WAS FOUND TO BE PAYING THE SAID RATE OF IN TEREST ON THE LOANS RAISED FROM OTHER PERSONS. THE ASSESSEE HAVI NG PAID INTEREST TO ONE OF THE CREDITORS AT 12% AND TO OTHERS AT 9%, AS PER THE CIT (APPEALS) DID NOT ESTABLISH THAT THE UNSECURED LOAN S WERE AVAILABLE IN THE MARKET AT THAT RATE. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF C IT (APPEALS) IN RESTRICTING THE RATE OF INTEREST TO 15% AS AGAIN ST 18% CLAIMED. 8. SHRI Y.K.SUD APPEARED FOR THE ASSESSEE AND SHRI N.K.SAINI PUT IN APPEARANCE ON BEHALF OF THE REVENUE AND PUT FORW ARD THEIR CONTENTIONS. 9. THE LEARNED A.R. FOR THE ASSESSEE STRESSED THAT THE PRINCIPLES OF CONSISTENCY DEMANDED THAT THE INTEREST RATE OF 1 8% BE APPLIED IN THE HANDS OF THE ASSESSEE AND NO ADDITION WAS WARRA NTED. THE LEARNED A.R. FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE SERIES OF DECISIONS FOR THE RATIO THAT WHERE THE ASSESSING OF FICER HAD NO INFORMATION VIS--VIS FAIR MARKET RATE OF INTEREST, NO DISALLOWANCE COULD BE MADE BY THE ASSESSING OFFICER. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE OF INTEREST BY INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD PA ID INTEREST @ 18% PER ANNUM TO THE PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE ACT AS AGAINST RATE OF INTEREST VARYING BETWEEN 9% TO 18% PAID 4 TO OTHER PERSONS. THE BREAK UP OF THE UNSECURED LO ANS RAISED FROM THE FAMILY MEMBERS AND FROM OTHERS IS AVAILABLE AT PAGE 4 OF THE ASSESSMENT ORDER. THE PERUSAL OF THE SAID TABULATE D DETAILS REFLECT THAT THE ASSESSEE HAD PAID UNIFORM RATE OF INTEREST ON THE LOANS RAISED FROM ITS FAMILY MEMBERS WHO ARE COVERED PERS ONS UNDER SECTION 40A(2)(B) OF THE ACT. IN RESPECT OF LOANS FROM OTHER PERSONS THE ASSESSEE HAD PAID THE RATE OF INTEREST @ 9% TO ONE PARTY AND 12% WAS PAID TO OTHER PARTY. TO OTHERS, THE RA TE OF INTEREST OF 15% WAS PAID. THE ASSESSING OFFICER ALSO CONFRONTE D THE ASSESSEE VIS--VIS BANK LOAN WHICH WAS 12% PER ANNUM. AS AG AINST THE ABOVE SAID DETAILS, THE ASSESSEE HAD FURNISHED ON R ECORD COMPARATIVE CHART OF THE RATE OF INTEREST PAID YEAR -WISE UNDER WHICH CONSISTENTLY IT WAS PAYING RATE OF INTEREST O F 18% TO ITS FAMILY MEMBERS FROM ASSESSMENT YEAR 2002-03 ONWARDS . HOWEVER, TO THE OTHER PERSONS, THE RATE OF INTEREST VARIED F ROM 8.5% TO 18%. IN THE PRECEDING YEAR THE ASSESSEE WAS PAYING INTER EST @ 8.5% TO FOUR PARTIES, 9% TO ONE PARTY, 12% TO THREE PARTIES , 15% TO TWO PARTIES AND 18% TO THREE PARTIES. IN THE YEAR UNDE R APPEAL THE ASSESSEE IS PAYING INTEREST @ 9% TO ONE, 12% TO ANO THER AND 15% TO FOUR PARTIES AND 18% PER ANNUM TO THE BALANCE PARTI ES. IN THE FACTS AND CIRCUMSTANCES AND IN VIEW THE ASSESSEE HAVING P AID INTEREST AT VARYING RATES OF INTEREST, WE DO NOT FIND MERIT IN THE CLAIM OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 40A(2 )(A) OF THE ACT, WHICH CLEARLY PROVIDES THAT WHERE THE PAYMENT IS BE ING MADE TO ANY PERSON SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT , SUCH SERVICE SHOULD BE PROVIDED AT MARKET RATE. WHERE THE ASSES SEE HIMSELF HAS PAID INTEREST AT A RATE LESSER THAN 18%, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE VIS--VIS THE RATE OF INTERES T @ 18% PER ANNUM PAID TO ITS FAMILY MEMBERS WHO ARE ADMITTEDLY SPECIFIED PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE ACT. WE FIND THAT THE ASSESSING OFFICER HAD ALLOWED RATE OF INTEREST OF 12% PER 5 ANNUM, WHICH WAS ENHANCED TO 15% BY THE CIT (APPEAL S) IN VIEW OF THE ASSESSEE HAVING PAID SIMILAR RATE OF INTEREST T O OTHER PERSONS AND ALSO THE RATE OF INTEREST BEING PAID TO THE BAN K. IN THE CHANGING SCENARIO OF MARKET RATE OF INTEREST BEING PAYABLE, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE OF THE CONSTA NT RATE OF INTEREST PAID FROM ASSESSMENT YEAR 2002-03 TO ASSESSMENT YEA R 2008-09 @ 18% PER ANNUM. WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT (APPEALS) IN APPLYING THE RATE OF INTEREST OF 15% I N RESTRICTING THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFI CER. UPHOLDING THE SAME WE DISMISS GROUND OF APPEAL RAISED BY THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JULY, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 31 ST JULY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH