SAKET HOTELS P.LTD, MUMBAI V. ITO 9(3)(1), MUMBAI

ITA 6183/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3128 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHWAS JADHAVDR
• Keywords: Principle of natural justice; Fair market value
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.6183 /MUM/2013 ( / ASSESSMENT YEAR : 2010-11) SAKET HOTELS PRIVATE LIMITED, 01, HOTEL SAKET PLAZA, OLD BAND ROAD, MAHABALESHWAR, MUMBAI 412806. / V. INCOME TAX OFFICER 9(3)(1), AAYAKAR BHAVAN,2 ND FLOOR, M.K. ROAD, MUMBAI 20. ./ PAN : AABCS5325C ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY MS. PARVATHY GANESH REVENUE BY : SHRI VISHWAS JADHAV(D.R.) / DATE OF HEARING : 15-03-2016 / DATE OF PRONOUNCEMENT : 13-06-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 6183/MUM/2013, IS DIRECTED AGAINST THE ORDER DATED 11-07-2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 20, M UMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2010- 11, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDER DATED 31-01-2013 PASSED BY THE LEARNED ASSESSING OF FICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961 (HE REINAFTER CALLED THE ACT). ITA 6183/MUM/2013 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITIONS MADE BY THE INCOME TAX OFFICER UNDER U/S 40(2)(A) OF THE ACT, IN RESPECT OF INTEREST PAID TO DIRECTOR, IN EXCESS OF 12% PA. 2. THE LEARNED CIT(A) ERRED IN PASSING EX-PARTE ORD ER WITHOUT APPRECIATING THAT THE ASSESSEE HAD NOT RECEIVED THE NOTI CE OF THE HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS OPERATING THE HOTEL SAKET PLAZA AT MAHABALESHWAR. THE ASSESS EE COMPANY PAID INTEREST @ 16% OF RS. 30,16,005/- TO M/S TPH TRAVEL SERVICES , THE PROPRIETARY CONCERN OF THE DIRECTOR SHRI UMESH MANEK AGAINST TH E LOAN RECEIVED. THE ASSESSEE COMPANY HAD PAID INTEREST @ 12% TO THE OTH ER DIRECTORS. FURTHER, THE ASSESSEE COMPANY HAD RECEIVED THE BANK LOAN @ 1 1.75%. THE ASSESSEE COMPANY WAS ASKED AS TO WHY THE DIFFERENCE OF 4% I. E. 7,54,001/- SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE C OMPANY U/S 40A(2)(A) OF THE ACT. IN REPLY, THE ASSESSEE COMPANY SUBMITTED THAT THE DIRECTOR, SH. UMESH MANEK HAD TAKEN LOANS FROM VARIOUS FINANCIAL INSTITUTIONS BY MORTGAGING HIS PROPERTIES @ 16% TO 19%. THE CHART O F LOANS RAISED BY THE SH. UMESH MANEK IN SUPPORT OF THE ASSESSEE COMPANYS CO NTENTIONS WAS DULY SUBMITTED BEFORE THE AO. THE A.O. CONSIDERED THE S UBMISSIONS OF THE ASSESSEE COMPANY BUT FOUND THE SAME TO BE NOT TENAB LE. THE A.O. OBSERVED THAT MANY OF THE LOANS WERE NOT TAKEN IN THE PREVIO US YEAR 2009-10 I.E. THE ASSESSMENT YEAR 2010-11. THE A.O. OBSERVED THAT IT WAS A CAUTIOUS DECISION OF THE DIRECTOR, SH. UMESH MANEK TO OBTAIN THE LOAN AT HIGHER RATES FOR THE FINANCIAL REQUIREMENTS OF HIS COMPANY AND THE TRANS ACTION HAS NO BEARING UPON THE FINANCIAL BEHAVIOR OF THE ASSESSEE COMPANY . FROM THE SUBMISSION OF THE ASSESSEE COMPANY , THE A.O. NOTED THAT THE ASSE SSEE COMPANY WAS PAYING ITA 6183/MUM/2013 3 THE INTEREST @ 12% TO OTHER DIRECTORS AND @ 11.75% TO THE BANK AND HENCE THE INTEREST PAID BY THE ASSESSEE COMPANY TO ITS D IRECTOR SHRI UMESH MANEK WAS EXCESSIVE WHEN COMPARED TO THE OTHER DIRECTORS AND ABOVE THE FAIR MARKET VALUE IF COMPARED WITH BANK INTEREST RATE. THE A.O. HELD THAT AS PER SECTION 40A(2)(A) OF THE ACT WHERE THE ASSESSEE CO MPANY INCURS ANY EXPENDITURE TO THE DIRECTOR, SUCH EXPENDITURE IS EX CESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS, SE RVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE AND THE SAME SHALL NOT BE ALLOW ED AS DEDUCTION. THE A.O. HENCE TREATED THE INTEREST PAYMENT ABOVE 12% AS EXCESSIVE AND UNREASONABLE AND THE INTEREST RATE DIFFERENCE OF 4% I.E. RS. 7,54,001/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMP ANY AS PER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT BY THE AO VIDE ASSE SSMENT ORDERS U/S 143(3) OF THE ACT DATED 31 ST JANUARY, 2013. 4.AGGRIEVED BY THE ASSESSMENT ORDERS DATED 31-01-20 13 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY FILED I TS FIRST APPEAL BEFORE THE LEARNED CIT(A). 5. THE LEARNED CIT(A) ISSUED SEVERAL NOTICES TO THE ASSESSEE COMPANY FIXING THE HEARING OF THE APPEAL FILED BY THE ASSES EE COMPANY BUT THERE WAS NO COMPLIANCE FROM THE ASSESSEE COMPANYS SIDE. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE COMPANY IS NOT INTERESTED IN PROS ECUTING ITS APPEAL FURTHER. RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF B.N. BHATTACHARGEE & OTHERS, 118 ITR 461 (SC) , THE LEAR NED CIT(A) HELD THAT APPEAL DOES NOT MEAN ONLY FILING OF MEMO BUT ALSO P URSUING THE SAME EFFECTIVELY. IN CASE THE APPELLANT DOES NOT PURSU E THE APPEAL, THE LEARNED CIT(A) HAS INHERENT RIGHT TO DISMISS THE APPEAL FOR NON-PROSECUTION. THE LEARNED CIT(A) ALSO RELIED ON THE DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF M/S CHEMIPOL V. UNION OF INDIA IN EXCIS E APPEAL NO. 62 OF 2009 AND IN THE CASE OF JAWAHARNAGAR CO.-OPERATIVE HOUS ING SOCIETY LTD. V. ITO ITA 6183/MUM/2013 4 24(3)(4) IN ITA NO. 4666/MUM/2010 DATED 26.7.2011 A ND IN THE CASE OF M/S FLAT COATERS (I) LTD. V. ITO IN ITA NO. 863/MUM/201 0 DATED 27.7.2011. ON MERITS, THE LEARNED CIT(A) REJECTED THE CONTENTI ONS OF THE ASSESSEE COMPANY AND UPHELD THE ORDER OF THE A.O. VIDE APPEL LATE ORDERS DATED 11-07- 2013. 6. AGGRIEVED BY THE APPELLATE ORDERS DATED 11-07-20 13 OF THE LEARNED CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUN AL. 7. THE LEARNED COUNSEL FOR THE ASSESSEE COMPANY SUB MITTED BEFORE US THAT THE LEARNED CIT(A) HAS PASSED AN EX-PARTE ORDER. T HE LEARNED COUNSEL MADE STATEMENT BEFORE THE BENCH THAT NO NOTICE OF HEARIN G FROM THE OFFICE OF LEARNED CIT(A) HAS BEEN RECEIVED BY THE ASSESSEE COMPANY WH ICH IS SUPPORTED BY THE GROUNDS RAISED BY THE ASSESSEE COMPANY IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL. THE LEARNED COUNSEL PRAYED THAT IF OPPOR TUNITY IS PROVIDED TO THE ASSESSEE COMPANY, THE ASSESSEE COMPANY CAN PROVE IT S CASE ON MERITS WITH SUBSTANTIAL EVIDENCES. 8. THE LD. D.R. ALSO NOT RAISED ANY OBJECTION IF TH E MATTER IS SET ASIDE TO THE FILE OF THE LEARNED CIT(A) FOR RE-ADJUDICATION OF T HE APPEAL. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE MATERIAL ON RECORD. WE HAVE NOTICED THAT THE ASSESS EE COMPANY HAS STATED TO HAVE NOT RECEIVED NOTICE OF INTIMATION REGARDING TH E HEARING IN THE FIRST APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) AND HENCE CONSEQUENTLY THE ASSESSEE COMPANY HAS STATED THAT IT COULD NOT PRESE NT ITS CASE IN THE FIRST APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) IN THE APPEAL FILED BY THE ASSESSEE COMPANY BEFORE THE LEARNED CIT(A) AND REPR ESENT PROPERLY AND EFFECTIVELY ON MERITS ITS CASE BEFORE THE LEARNED C IT(A), WHICH HAS RESULTED IN ITA 6183/MUM/2013 5 EX-PARTE DISMISSAL OF THE FIRST APPEAL BY THE LEARN ED CIT(A) CAUSING SERIOUS PREJUDICE TO THE ASSESSEE COMPANY. IN THE INTEREST OF SUBSTANTIAL JUSTICE AND KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE, IN OUR CONSIDERED VIEW, THE ISSUES ARISING OUT OF APPEAL BEFORE THE T RIBUNAL NEEDS TO BE SET ASIDE TO THE FILE OF LEARNED CIT(A) FOR DE-NOVO ADJUDICAT ION OF THE ISSUES AFTER CONSIDERING THE SUBMISSION/EXPLANATIONS OF THE ASSE SSEE COMPANY ON MERITS. THE LEARNED CIT(A) SHALL ALLOW PROPER AND ADEQUATE OPPORTUNITY TO THE ASSESSEE COMPANY OF BEING HEARD BEFORE ADJUDICATING THE APPEAL ON MERITS IN DE-NOVO ADJUDICATION PROCEEDINGS IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE AND IN ACCORDANCE WITH LAW. THE ASSESSEE C OMPANY IS DIRECTED TO APPEAR BEFORE THE LEARNED CIT(A) AND SUBMIT THE REL EVANT EXPLANATION/SUBMISSIONS AND EVIDENCES BEFORE THE LE ARNED CIT(A) IN SUPPORT OF ITS DEFENSE WHICH SHALL BE ADMITTED BY THE LEARN ED CIT(A) IN ACCORDANCE WITH LAW AND THE ISSUES SHALL THEN BE ADJUDICATED ON MERITS . WE ORDER ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IN ITA N0. 6183/MUM/2013 FOR THE ASSESSMENT YEAR 2010-11 IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JUNE , 2016. # $% &' 13-06-2016 ( ) SD/- SD/- (C.N.PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 13-06-2016 [ ITA 6183/MUM/2013 6 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI