M/s. Surcoat Paints Pvt. Ltd., Lucknow V. DCIT, Lucknow

ITA 617/LKW/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5366 (ITAT-LUCKNOW)
• Duration Of Justice: 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 12-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: USMANI
• Assessee Lawyers: K R RASTOGI
• Keywords: Principle of natural justice
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT I.T.A.NO.617(LKW.)/2010 A.Y. :2006-07 M/S.SURCOAT PAINTS PVT. LTD., VS. THE DY.CIT, RAN GE-II, B-736,SECTOR-C,MAHANAGAR, LUCKNOW. LUCKNOW. PAN AADCS4280Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.R.RASTOGI, C.A. AND S HRI SHUBHAM RASTOGI, C.A. RESPONDENT BY : SHRI S.H.USMANI, D.R. O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A) I, LUCKNOW DATED 4.8.2010 RELATING TO THE A SSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE HAS TAKEN THE FOLL OWING GROUNDS: 1. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS)-I , LUCKNOW ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS.60442-00 BEING PART DISALLOWANCE OUT OF INTEREST PAID TO DEPOSITORS @ 13-00 % PER ANNUM AND RESTRICTING THE RATE OF INTEREST @ 12-00% PER ANNUM. 2. THE LD. C.I.T. (APPEALS)-I, LUCKNOW DID NOT APPR ECIATED THAT ALL THE DEPOSITS ARE OLD AND RATE OF INTEREST IS SA ME AS PAID IN EARLIER YEAR AND ACCEPTED IN EARLIER YEAR ASSESSMEN TS. 3. THE ADDITIONS MADE IS HIGHLY EXCESSIVE, CONTRARY TO THE FACTS, LAW AND PRINCIPLE OF NATURAL JUSTICE. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF INDUSTRIAL AND DOMESTIC ENAMELS AND PAINTS. THE COMPANY FILED ITS RETURN O F INCOME AT NIL INCOME. THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF T HE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS.60, 442 AFTER SETTING OFF OF UNABSORBED LOSSES OF RS.65,563. THE ASSESSEE HAD A VAILED UNSECURED LOANS FROM DIRECTORS, WHICH WERE OLD ONES. ON THE SAID L OANS, THE ASSESSEE HAD PAID INTEREST AT THE RATE OF 13% PER ANNUM WHICH AM OUNTED TO RS.7,85,746 AND THE SAID PAYMENTS WERE COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE BEING SSI UNIT, THE PREVAILING RATE OF INTEREST DURING THE YEAR 2005-06 WAS 11.5%,WHICH WAS 1% BELOW THE PLR OF 12 .5%, WHEREAS THE PREVALENT INTEREST RATE ON SSI UNITS IS 13.5% I.E. 1% ABOVE THE PLR. THE AO ALLOWED THE INTEREST AT THE RATE OF 12%, THEREBY MAKING DISALLOWANCE @ 1% AMOUNTING TO RS.60,442. 4. ON APPEAL, THE LD.CIT(A) CONFIRMED THE DISALLO WANCE OBSERVING AS UNDER: 2. IN THE APPELLATE PROCEEDINGS THE APPELLANT CLA IMED THAT THE INTEREST PAID AT 13% TO THE DIRECTOR WAS NET EXCESS IVE AND THE APPELLANT ITSELF WAS PAYING INTEREST TO THE BANKS @ 11.5%. THE APPELLANT'S CONTENTION THUS GOES TO STRENGTHEN THE VIEW OF THE AO THAT THE RATE OF INTEREST TO THE DIRECTORS AT 13% WAS I N FACT EXCESSIVE. THE APPELLANT CONTENDED THAT THE GENUINENESS OF THE PAY MENT OF INTEREST AT THE RATE CLAIMED HAS NOT BEEN DOUBTED BY THE AO. TH IS CONTENTION IS HOWEVER NOT ACCEPTABLE SINCE THE PROVISIONS OF SECT ION 40A(2)(B) DO NOT ENVISAGE THAT THE NON GENUINENESS OF THE PAYMEN T NEEDS TO BE ESTABLISHED BEFORE EMBARKING UPON ANY DISALLOWANCE UNDER THESE PROVISIONS. IN FACT IF THE PAYMENT WAS NOT FOUND TO BE GENUINE IT WOULD HAVE CALLED FOR ENTIRE DISALLOWANCE RATHER TH AN DISALLOWANCE OF THE ELEMENT OF EXCESSIVENESS AS ENVISAGED IN THE P ROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 3 5. SHRI K.R.RASTOGI, C.A., WHILE APPEARING FOR THE ASSESSEE, SUBMITTED THAT DURING THIS YEAR, THE ASSESSEE HAD PAID INTER EST AT THE RATE OF 13% TO THE DIRECTORS, NAMELY, SUMAN SINGHAL AND SUYOG SINGHAL . THE DEPOSITS ARE OLD AND INTEREST RATE IS ALSO THE SAME AS WAS PAID IN EARLIER YEARS. DEPOSITS ARE REPAYABLE ON DEMAND AND IT IS WITHOUT PROVIDING A NY SECURITY. SHRI K.R.RASTOGI, LD. COUNSEL FOR THE ASSESSEE FURTHER S UBMITTED THAT THE BANK INTEREST RATE IS 11.5% QUARTERLY COMPOUNDED. IN A DDITION TO THIS BANK CHARGED DOCUMENTATION CHARGES AND OTHER INCIDENTAL CHARGES, INSURANCE ETC. ACCORDINGLY, THE EFFECTIVE RATE OF INTEREST IS NOT LESS THAN 15%. IN ADDITION TO THIS, THE ASSESSEE HAS TO PROVIDE THE SECURITY FOR OBTAINING LOANS FROM BANK IN THE SHAPE OF FDR AND MORTGAGE OF ASSETS. SHRI K.R. RASTOGI, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE RATE OF IN TEREST BEING SIMPLE INTEREST RATE OF 13% PER ANNUM IS QUITE REASONABLE. SHRI K.R .RASTOGI, LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HO N'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. JAI PRAKASH ASSOCIATES PVT. LTD.,(2006) 281 ITR 419(ALLD.), WHEREIN THE HON'BLE HIGH COURT HELD THA T IF THE DEPOSIT IS NOT RENEWED NOR FRESH DEPOSIT HAS BEEN ACCEPTED, INTERE ST CANNOT BE DISALLOWED FOR SUBSEQUENT YEAR. SHRI K.R. RASTOGI, LD. COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO MY NOTICE THE DECISION OF THE TRIBUNAL, S.M.C. BENCH, LUCKNOW IN THE CASE OF SOORAJ MAL GOVERDHAN DAS, SITAPUR VS . ITO, SITAPUR IN I.T.A.NO.326(LUC.)/2006 DATED 7.7.2006 WHEREIN THE TRIBUNAL HELD THAT THE INTEREST ON OLD DEPOSITS CANNOT BE DISALLOWED FOR A SUBSEQUENT YEAR IF THE SAME RATE OF INTEREST WAS ALLOWED IN EARLIER YEAR. 6. SHRI H.S.USMANI, LD.D.R. HEAVILY RELIED ON THE O RDERS OF THE LOWER AUTHORITIES. 4 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD .CIT(A) IS NOT JUSTIFIED. ADMITTEDLY, THE DEPOSITS ARE NOT NEW DEP OSITS AND SAME RATE OF INTEREST WAS ALLOWED IN THE PRECEDING YEARS ON THE VERY SAME DEPOSITS. IN OTHER WORDS, THE DEPOSITS ARE OLD AND INTEREST RAT E IS ALSO THE SAME AS WAS PAID IN EARLIER YEARS. IN MY OPINION THE DECISION O F HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF JAI PRAKASH ASSOCIATES PVT. L TD.(SUPRA) AND THE DECISION OF THE TRIBUNAL, SMC BENCH, LUCKNOW IN THE CASE OF M/S. SOORAJ MAL GOVERDHAN DAS(SUPRA) ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND THEREFORE, KEEPING IN VIEW THE ABOVE DECISIONS, I ALLOW THE APPEAL OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 4. 11.2010. SD. (H.L.KARWA) VICE PRESIDENT NOVEMBER 4TH ,2010. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.