M/s. Akshar Finance Ltd., Junagagh V. The Income tax Officer,Ward-1(1), Ahmedabad

ITA 671/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9039 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 02-03-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C
• Keywords: Business expenditure; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 11.09.09 DRAFTED ON:17.09.0 9 ITA NO.671/AHD/2009 ASSESSMENT YEAR : 2005-06 M/S. AKSHAR FINANCE LIMITED. B-2 ASHOKA APARTMENT, BESIDES ORIENT CLUB, NR.GUJARAT COLLEGE, ELLISBRIDGE, AHMEDABAD. VS. I.T.O, WARD-1(1), AHMEDABAD. PAN/GIR NO. : AABCA 6184 H (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SAMIR JANI RESPONDENT BY: SHRI M.C.PANDIT SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-VI, AHMEDABAD, DATED 15.12.2008. 2. GROUND NO.1 OF THE APPEAL RELATES TO CONFIRMING THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER 153C OF THE ACT RAISING DEMAND OF RS9,97,482/-. 3. GROUND NO.4 OF THE APPEAL RELATES TO AWARDING OF COST FOR THE ARBITRARY MANNER IN WHICH THE ORDER IS PASSED BY THE DEPARTMENT. ITA NO .671/AHD/2009 M/S.AKSHAR FIANANCE LTD. ASST.YEAR -2005-06 - 2 - 4. GROUND NO.5 OF THE APPEAL RELATES TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY, OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE TIME OF BEFORE THE HEARING OF APPEAL. 5. AT THE TIME OF THE HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING GROUND NO.1, 4 AND 5 TAKEN IN THE APPEAL. THEREFORE, THEY ARE DISMISSED AS NOT PRESSED. 6. GROUND NOS.2 AND 3 OF THE APPEAL RELATE TO THE DISALLOWANCE OF RS.21,59,648/- ON ACCOUNT OF PAYMENT OF EXCESS INTEREST BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 7. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY WHEREIN PUBLIC IS SUBSTANTIALLY INTEREST. THE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT COMPANY. IT IS A REGISTERED NON BANKING FINANCE COMPANY WITH RESERVE BANK OF INDIA VIDE REGISTRATION DTD. 27.02.1998 AND A COPY OF THE SAID LICENSE ARE ENCLOSED HEREWITH. THE IMMEDIATE PAST, PRIOR TO 31.03.04, OF THE COMPANY WAS THAT IT WAS A LOSS MAKING SICK COMPANY HAVING HUGE STICKY ADVANCES. WITH THE NEW MANAGEMENT, AS A PART OF THE REVIVAL PACKAGE, IT RECOVERED THE OLD STICKY ADVANCES AND BECAME CASH RICH COMPANY. IN ORDER NOT TO REPEAT HISTORY, THE BOARD DECIDED TO LEND FUNDS ONLY TO SOUND FINANCIAL PERSONS WITH GOOD BUSINESS REPUTE. ACCORDINGLY, IT WAS APPROACHED BY M/S. CHOKSHI VACHHRAJ MAKANJI & COMPANY WHO HAD GOOD BUSINESS REPUTE AND SOUND FINANCIAL STATUS. THE PROPOSAL OF THE COMPANY WAS TO ADVANCE RS.5 CR. ITA NO .671/AHD/2009 M/S.AKSHAR FIANANCE LTD. ASST.YEAR -2005-06 - 3 - OR MORE @ 10%. SINCE 'THE ASSESSEE HAD ONLY RS.3 CR. AVAILABLE WITH IT, IT APPROACHED THE SHAREHOLDERS FOR DEPOSIT. THE SHAREHOLDERS AGREED FOR DEPOSIT BUT @ 15% INTEREST. COMPANY HAD TWO OPTIONS EITHER TO LOOK FOR SOME NEW BORROWER OR ACCEPT FUNDS @ 15% FROM SHAREHOLDERS TO THE EXTENT OF RS.2 CR. AFTER A HECTIC EXERCISE IT COULD NOT FIND A SOUND BORROWER WITH AN ATTRACTIVE OFFER AND AS SUCH THE ONLY OPTION LEFT WITH THE COMPANY WAS TO BORROW FUNDS OF RS. 2 CR. FROM SHAREHOLDERS AND LEND RS. 5 CR. TO THE AFORESAID BORROWER. THESE FACTS ARE ON RECORD. THE ASSESSEE COMPANY, IF NOT OPTING FOR THE ABOVE PROPOSAL, HAD THE ONLY OPTION OF PARKING THE SAID FUNDS IN SOME SAFE SECURITY WHICH WOULD HAVE FETCHED HIM INTEREST 6% ONLY. THUS LOSING 4% ON RS. 3 CR. I,E. RS.12 LAC P.A. IN ORDER TO EARN RS.12 IAC MORE ON ITS CAPITAL IT ACCEPTED THE AFORESAID PROPOSAL AND THE SAME IS PRUDENT BUSINESS DECISION. THE SAME WAS OUT OF COMMERCIAL EXPEDIENCY. THE LEARNED ASSESSING OFFICER DISALLOWED INTEREST EXPENDITURE OF RS. 21,59,648/- ON THE GROUND THAT THE ASSESSEE HAS ADVANCED THE LOAN @ 10% INTEREST TO ITS SISTER CONCERNS AND BORROWED AMOUNT FOR THE PURPOSE OF ADVANCING THE SAID LOANS FROM ITS SHAREHOLDERS AND DIRECTORS @ 15%. THEREFORE, ACCORDING TO LEARNED ASSESSING OFFICER INTEREST PAYMENT @ 5% WAS NOT FOR BUSINESS PURPOSES AND HE ACCORDINGLY DISALLOWED RS.21,59,648/-. 8. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER. ITA NO .671/AHD/2009 M/S.AKSHAR FIANANCE LTD. ASST.YEAR -2005-06 - 4 - 9. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE POINTED OUT THAT IT WAS A INVESTMENT COMPANY AND WAS HAVING LIQUID FUNDS OF RS.3 CRORES WHEREAS M/S.CHOKSHI VACHHRAJ MAKANJI & CO. AGREED TO BORROW NO LESS THAN RS.5 CRORES AT THE INTEREST RATE OF 10%. THE ASSESSEE COMPANY WAS SATISFIED WITH THE CREDIT WORTHINESS OF THE SAID BORROWER, IT AGREED TO ADVANCE RS.5 CRORES AFTER ARRANGING RS.2 CRORES FROM OTHERS. THE ASSESSEE FURTHER EXPLAINED THAT THE SHARE HOLDERS WERE INTERESTED IN GIVING LOAN TO THE ASSESSEE COMPANY @ 15% ONLY. IN THE CIRCUMSTANCES, IF THE ASSESSEE COMPANY WOULD NOT HAVE GONE WITH THIS DEAL, THE ASSESSEE COMPANY WOULD HAVE INVESTED THE FUNDS IN GOVERNMENT SECURITIES WHERE IT WOULD HAVE EARNED AT MAXIMUM RATE OF 6%. THEREFORE, THE ASSESSEE COMPANY IN ORDER TO EARN MORE BY 4% ON RS.3 CRORES HAS AGREED TO PAY EXTRA 5% INTEREST ON RS.2 CRORES AS A PRUDENT BUSINESSMAN BECAUSE 4% ON RS.3 CRORES IS MORE THAN 5% ON RS.2 CRORES. THEREFORE, THE ASSESSEE COMPANY HAS EARNED MORE INCOME BY THIS ARRANGEMENT AND THEREFORE, THE ARRANGEMENT BEING A BONAFIDE BUSINESS ARRANGEMENT, NO PART OF THE BUSINESS EXPENDITURE SHOULD HAVE BEEN DISALLOWED. HE ALSO CONTENDED THAT ALL THE SHAREHOLDERS HAD PAID TAX AT THE MAXIMUM RATE AND THEREFORE, THERE WAS NO LOSS OF TAX TO THE GOVERNMENT. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. ITA NO .671/AHD/2009 M/S.AKSHAR FIANANCE LTD. ASST.YEAR -2005-06 - 5 - 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, INTEREST OF RS.21.59.648/- WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER OUT OF THE TOTAL PAYMENT OF INTEREST BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS ADVANCED THE LOAN @ 10% INTEREST TO ITS SISTER CONCERNS AND BORROWED AMOUNT FOR THE PURPOSE OF ADVANCING THE SAID LOANS FROM ITS SHAREHOLDERS AND DIRECTORS @ 15%. THEREFORE, ACCORDING TO LEARNED ASSESSING OFFICER INTEREST PAYMENT @ 5% WAS NOT FOR BUSINESS PURPOSES AND HE ACCORDINGLY DISALLOWED RS.21,59,648/-. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE POINTED OUT THAT IT WAS A INVESTMENT COMPANY AND WAS HAVING LIQUID FUNDS OF RS.3 CRORES WHEREAS M/S.CHOKSHI VACHHRAJ MAKANJI & CO. AGREED TO BORROW NO LESS THAN RS.5 CRORES AT THE INTEREST RATE OF 10%. THE ASSESSEE COMPANY WAS SATISFIED WITH THE CREDIT WORTHINESS OF THE SAID BORROWER, IT AGREED TO ADVANCE RS.5 CRORES AFTER ARRANGING RS.2 CRORES FROM OTHERS. THE ASSESSEE FURTHER EXPLAINED THAT THE SHARE HOLDERS WERE INTERESTED IN GIVING LOAN TO THE ASSESSEE COMPANY @ 15% ONLY. IN THE CIRCUMSTANCES, IF THE ASSESSEE COMPANY WOULD NOT HAVE GONE WITH THIS DEAL, THE ASSESSEE COMPANY WOULD HAVE INVESTED THE FUNDS IN GOVERNMENT SECURITIES WHERE IT WOULD HAVE EARNED AT MAXIMUM RATE OF 6%. THEREFORE, THE ASSESSEE COMPANY IN ORDER TO EARN MORE BY 4% ON RS.3 CRORES HAS AGREED TO PAY EXTRA 5% INTEREST ON RS.2 CRORES AS A PRUDENT BUSINESSMAN BECAUSE 4% ON RS.3 CRORES IS MORE THAN 5% ON RS.2 CRORES. THEREFORE, THE ASSESSEE COMPANY HAS EARNED MORE ITA NO .671/AHD/2009 M/S.AKSHAR FIANANCE LTD. ASST.YEAR -2005-06 - 6 - INCOME BY THIS ARRANGEMENT AND THEREFORE, THE ARRANGEMENT BEING A BONAFIDE BUSINESS ARRANGEMENT, NO PART OF THE BUSINESS EXPENDITURE SHOULD HAVE BEEN DISALLOWED. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD AS UNDER:- KEEPING IN VIEW THE AFORESAID FACTS, CIRCUMSTANCES AND VARIOUS PRONOUNCEMENTS, THE FACT EMERGES THAT THE APPELLANT HAS TAK EN UNSECURED LOANS ON INTEREST @ 15% FROM THE DIRECTORS (I.E . SHRI NATVARLAL VACHHARAJ; GIRISH KUMAR VACHHRAJ; DEEPAKKUMA R NATVARLAL ANDN JUGALKISHOR NATVARLAL) WHEREAS IT HAS GIVEN LOA NS ON INTEREST @ 10% TO ITS ASSOCIATE CONCERNS (I.E. CVM JEWELS P. LTD. A ND M/S. CHOKSHI VACHHRAJ MAKANJI & CO.). CONSEQUENTLY, 5% EXCES S PAYMENT OF INTEREST HAS BEEN MADE BY THE APPELLANT. IT IS ALSO A F ACT THAT ALL THE PERSONS FROM WHOM APPELLANT HAS BORROWED @ 15% ARE SHAREH OLDERS OF THE APPELLANT AND ALSO THE PARTIES TO WHO LOANS HAVE BE EN GIVEN ARE ASSOCIATE/SISTER CONCERN OF THE APPELLANT. WITH THE RESULT, T HE FACTS IS CRYSTAL CLEAR THAT THE TRANSACTIONS OF BORROWING AND LEN DING ARE NOT WITH ANY OUTSIDER. THE PLEA OF APPELLANT THAT IT COULD NOT FIND A NY OTHER BETTER BORROWER IS NOT AT ALL SUPPORTED BY ANY CORROBORATIVE E VIDENCE. FURTHER, THE ARGUMENT OF THE APPELLANT THAT BY NOT OPTING FOR THE AFORES AID PROPOSAL; IT COULD HAVE EARNED INTEREST @ 6% AND CONSE QUENTLY COULD HAVE LOST 4% ON RS.3 CRORES IS NOT AT ALL SUSTAINABLE BY THE VERY FACT THAT BY OPTING FOR THE PROPOSAL IN QUESTION, THE APPELLANT H AS LOST 5% ON ITS OWN FUNDS OF RS.3 CRORES. IT IS ALSO A FACT THAT THE APPE LLANTS CONTENTION THAT ITS LIMITATION OF THE INVESTMENT AS PER NOR MS OF RESERVE BANK OF INDIA IS NOT AT ALL SUBSTANTIATED BY ANY CORROBO RATIVE EVIDENCE. IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CASE LAWS RELIED UPON BY THE APPELLANT (I.E. S.A. BUILDERS LTD. (2007) 288 ITR 1 (SC) AN D CIT V. ITA NO .671/AHD/2009 M/S.AKSHAR FIANANCE LTD. ASST.YEAR -2005-06 - 7 - DALMIA CEMENT B. LTD. (2002) 254 ITR 377 (DELHI) DO NOT SQUARELY A PPLY ON THE APPELLANT AS THE APPELLANT HAS TOTALLY FAILED TO ES TABLISH THE COMMERCIAL EXPEDIENCY. IN THE GIVEN FACTS AND CIRCUMS TANCES, IT IS ABUNDANTLY CLEAR THAT THE TRANSACTIONS ENTERED INTO BY THE APPELLANT ARE WITH ITS OWN SHAREHOLDERS AND SISTER/ASSOCIATE CONCERN, THEREBY, THERE IS NO COMMERCIAL EXPEDIENCY AT ALL TO ENTER INTO THE TRANSAC TIONS IN QUESTION. WITH THE RESULT, THE SAME IS NOTHING BUT DIVERSIO N OF PROFIT. PLANNING FOR TAXATION MUST BE CORRECT, BOTH IN FORM AS WELL AS SUBSTANCE. [S.A.BUILDERS LTD. V. CIT (2004) 269 ITR 535 (P & H); CITR V. H.R.SUGAR FACTORY PVT. LTD. (1971) 187 ITR 363 (ALLAH)]. KEEPING IN VIEW THE AFORESAID FACTS, CIRCUMSTANCES AND V ARIOUS JUDICIAL PRONOUNCEMENTS, THE LEARNED ASSESSING OFFICER HAS RIGH TLY DISALLOWED THE PAYMENT OF EXCESS INTEREST BY 5% (I.E. RS.21,59,648) AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. WITH THE RESULT, THE ACTION OF THE LEARNED ASSESSING OFFICER IS CONFIRMED ON THIS GROUND. 12. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). HE ALSO CONTENDED THAT ALL THE SHAREHOLDERS HAD PAID TAX AT THE MAXIMUM RATE AND THEREFORE, THERE WAS NO LOSS OF TAX TO THE GOVERNMENT. WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. FURTHER, NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THAT THE SHAREHOLDERS PAID TAX ON THE ENTIRE AMOUNT OF INTEREST OF 5% AT MAXIMUM RATE AND THEREBY NO LOSS TO THE REVENUE OF THE GOVERNMENT TOOK PLACE BECAUSE OF THE ARRANGEMENT OF THE ASSESSEE. IN THE ABOVE FACTS AND CIRCUMSTANCES OF ITA NO .671/AHD/2009 M/S.AKSHAR FIANANCE LTD. ASST.YEAR -2005-06 - 8 - THE CASE, WE FIND THAT IN THE INSTANCE CASE, IT IS NOT IN DISPUTE THAT THE PARTIES FROM WHOM THE ASSESSEE BORROWED THE FUNDS AS WELL AS THE PARTIES TO WHOM THE ASSESSEE HAS ADVANCED THE LOAN ALL ARE ASSOCIATED PARTIES. IT IS NOT THE CASE OF THE ASSESSEE THAT THE NATURE OF LOAN TAKEN AND NATURE OF LOAN PROVIDED WERE DIFFERENT, I.E. ONE WAS UNSECURED LOAN AND THE OTHER WAS SECURED LOAN. IN ABSENCE OF ANY SUCH MATERIAL BROUGHT ON RECORD, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/09/2009. SD/- SD/- ( ( ( ( H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA ) )) ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUN TANT MEMBER JUDICIAL MEMBER ACCOUN TANT MEMBER JUDICIAL MEMBER ACCOUN TANT MEMBER JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED 18/09/2009