SUMANGAL SILK MILLS P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 7196/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9901 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 02-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR A K NAYAK
• Keywords: Unexplained cash credit; Additional evidence
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E, MUM BAI BEFORE SHRI P.K. BANSAL, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 7196/MUM/2014 (ASSESSMENT YEAR- 2011-12) SUMANGAL SILK MILLS PVT. LTD. 201, SANJAY BUILDING NO.3, MITTAL INDUSTRIAL ESTATE, ANDHERI KURLA ROAD, ANDHERI (EAST),MUMBAI-400059 PAN: AANFS1752N VS. DCIT 8(3), AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. K. SHIVARAM WITH MS. NEELAM JADHAV (AR) REVENUE BY : DR. A.K. NAYAK (DR) DATE OF HEARING : 12.06.2017 DATE OF PRONOUNCEMENT : 11.07.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF COMMISSIONER APPEALS- 18 MUMBAI DATED 19 TH SEPTEMBER 2014 FOR ASSESSMENT YEAR 2011-12. THE ASS ESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: I. RULE 46A: 1. THE LEARNED CIT(A) ERRED IN DENYING THE DETAILS SUBMITTED BY THE ASSESSEE COMPANY IN THE FORM OF COPY OF DAY BOOK OF CASH BOO K IS A PART OF THE FINANCIAL STATEMENTS/ BOOKS OF ACCOUNTS OF THE COMPANY AND TH E SAME WAS SUBMITTED BEFORE ASSESSING OFFICER. THE DOCUMENTS SUBMITTED B EFORE THE CIT(A) IS NOT AN ADDITIONAL EVIDENCE FILED UNDER RULE 46A OF THE INC OME TAX RULES, AND HENCE ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 2 THE REJECTION OF DOCUMENT SIMPLY RELIED ON THE RULE 46A OF THE INCOME TAX RULE, 1962. II. WITHOUT PREJUDICE TO THE ABOVE ON MERITS 2. ADDITION U/S. 68 OF RS. 10,00,000/- 2.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDE R OF THE ASSESSING OFFICER TOWARDS ADDITION U/S. 68 OF RS. 10,00,000/- BASED O N THE INFORMATION RECEIVED ON AIR DATABASE. WITHOUT APPRECIATING THAT THE SAID CASH DEPOSITS WERE DULY REFLECTED IN BOOKS OF ACCOUNTS AND THE BOOKS OF ACC OUNTS WERE DULLY AUDITED UNDER THE PROVISIONS OF COMPANIES ACT AS WELL AS IN COME TAX ACT. THE SAID BOOKS OF ACCOUNTS WERE DULLY VERIFIED BY THE A.O., HENCE, THE ADDITION CONFIRMED BY THE CIT(A) MAY BE DELETED. 3. ADDITION U/S. 40A(2)B) OF RS. 16,23,034/- 3.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDE R OF THE ASSESSING OFFICER ON THE ISSUE OF DISALLOWANCE OF RS. 12,15,000/- U/S . 40A(2)(B), WITHOUT APPRECIATING THAT THERE WAS AN INCREASED IN REMUNER ATION PAID TO THE DIRECTORS WHO WERE THE KEY PERSONS OF THE COMPANY AND THE SAI D REMUNERATION WAS INCREASED AS PER THE RESOLUTION PASSED BY THE COMPA NY AND ON THE BASIS OF G.P. PERCENTAGE OF THE COMPANY, THEREFORE DISALLOWANCE M ADE WAS NOT JUSTIFIED. HENCE, THE DISALLOWANCE CONFIRMED MAY BE DELETED. 3.2 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDE R OF THE ASSESSING OFFICER ON THE ISSUE OF DISALLOWANCE OF RS. 4,08,034/- U/ S . 40A(2)(B), WITHOUT APPRECIATING THAT THE THERE WAS AN INCREASED IN THE INTEREST RATE IS ONLY 15% TO 18% AND IT WAS AS PER THE RESOLUTION PASSED BY THE ASSESSEE COMPANY. THE COMPANY HAD ALSO HAD SUFFICIENT FOUND/RESERVE FOR P AYMENT OF INTEREST, THEREFORE, DISALLOWANCE MADE WAS NOT JUSTIFIED. HEN CE, THE DISALLOWANCE CONFIRMED MAY BE DELETED. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A C OMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE FABRIC FROM VARIOUS TYP ES OF YARNS, FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 28 SEPTEM BER 2011 DECLARING TOTAL INCOME OF RS. 33,06,183/-. THE ASSESSMENT WAS COMPL ETED ON 31 JANUARY 2014 UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER WHILE PASSING ASSESSMENT ORDER BESIDES THE OTHER ADDITION AND DIS ALLOWANCE, ADDED RS. 10 LACKS AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 A ND DISALLOWED ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 3 RS.12,15,000/- ON ACCOUNT OF DIRECTORS REMUNERATION AND RS. 4,08,034/- ON ACCOUNT OF INTEREST PAYMENT TO RELATED PARTY. BOTH THE DISALLOWANCE WAS MADE UNDER SECTION 40A(2)(B) OF THE ACT. ON APPEAL BEFORE COMMISSIONER (APPEALS) BOTH THE ADDITION AND DISALLOWANCES WERE CONFIRMED. FURTHER, AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS) TH E PRESENT APPEAL IS FILED BEFORE US. 3. WE HAVE HEARD LEARNED AUTHORIZED REPRESENTATIVE (A R) OF ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE (DR) FOR REVE NUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRST GROUND OF APPEA L RELATES THE TREATMENT OF THE DOCUMENTS AND WRITTEN SUBMISSION, SUBMITTED BEF ORE COMMISSIONER (APPEALS) AS ADDITIONAL EVIDENCE UNDER RULE 46A. TH E LEARNED AR OF THE ASSESSEE ARGUED THAT ALL THE DOCUMENTS, WHICH WERE FILED BEFORE COMMISSIONER (APPEALS) WERE ALSO FILED /FURNISHED B EFORE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING, HOWEVER THE LEARN ED COMMISSIONER (APPEALS) WRONGLY TREATED THOSE SUBMISSION AND THE DOCUMENTS AS ADDITIONAL EVIDENCE. IT WAS FURTHER ARGUED THAT ALL THOSE SUBM ISSION AND THE DOCUMENT ARE PLACED BEFORE THE TRIBUNAL ALONG WITH A CERTIFI CATE, CERTIFYING THAT THE DOCUMENTS WERE FURNISHED BEFORE THE LOWER AUTHORITI ES. ON THE OTHER HAND LEARNED DR FOR THE REVENUE ARGUED THAT THIS GROUND OF APPEAL HAS NO RELEVANCE. ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 4 4. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE RECORD. IN OUR VIEW THIS GROUND OF APPEAL NEEDS NO SPECIFIC ADJUDICATION AND THE SAME WOULD BE TAKEN CARE WHILE DISCUSSING THE O THER GROUNDS OF APPEAL. 5. GROUND NO.2 RELATES TO CONFIRMING THE ADDITION OF R S. 10.00 LAKHS UNDER SECTION 68 OF THE ACT. THE LEARNED AR OF THE ASSES SEE ARGUED THAT ON THE BASIS OF AIR INFORMATION, THE ASSESSING OFFICER ISS UED NOTICE TO THE ASSESSEE UNDER SECTION 143(2) AND FURTHER ISSUED NOTICE UNDE R SECTION 142(1). IN RESPONSE TO THOSE NOTICES OF THE ASSESSING OFFICER, THE ASSESSEE FURNISHED IS ITS REPLY ALONG WITH THE CASHBOOK AND DETAILS OF DEPOS ITS ON THE 15 TH NOV 2010 AND FURTHER ON 12 JAN 2011 IN ITS BANK ACCOUNT WITH TAMIL NADU MERCANTILE BANK LTD. ALONG WITH THE REPLY THE ASSESSEE FURNISH ED DAY-TO-DAY CASHBOOK SUMMARY. HOWEVER, THE ASSESSING OFFICER IN ITS ORD ER OBSERVED THAT ASSESSEE HAS NOT SUBMITTED CASHBOOK FOR VERIFICATION AND HEL D THAT THE CASH DEPOSITS WERE UNEXPLAINED. BEFORE COMMISSIONER (APPEALS) THE ASSESSEE FURNISHED WRITTEN SUBMISSION DATED 21 JULY 2014 ALONG WITH CA SHBOOK. THE LEARNED COMMISSIONER (APPEALS) REMANDED THE WRITTEN SUBMISS ION AND THE CASHBOOK FOR VERIFICATION TO THE ASSESSING OFFICER. THE ASS ESSING OFFICER IN ITS REPORT DATED 28 TH OF AUGUST 2014 SUBMITTED THAT NO SUCH CASHBOOK WAS ENCLOSED ALONG WITH THE SUBMISSION AND THE CASHBOOK PRODUCED FOR EXAMINATION IS INCORRECT, THE CASHBOOK WAS NEVER FILED OR PRODUCED FOR VERIFICATION. ON THE REPORT OF ASSESSING OFFICER THE LEARNED COMMISSIONE R (APPEALS) AGAIN ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 5 REQUIRED COMMENT OF ASSESSEE. THE ASSESSEE VIDE HIS REPLY DATED 18 SEPTEMBER 2014 REITERATED ITS EARLIER CONTENTION TH AT ALL THOSE DOCUMENTS WERE FURNISHED. HOWEVER, THE LEARNED COMMISSIONER ( APPEALS) CONSIDERING THE REMAND REPORT OF ASSESSING OFFICER UPHELD THE A DDITION. IT WAS FURTHER ARGUED THAT THE ASSESSEE HAS EXPLAINED THE SOURCE O F DEPOSIT AND THE BOOKS OF ACCOUNT OF ASSESSEE WERE NOT REJECTED. THE ASSESSIN G OFFICER SIMPLY MADE THE ADDITION ON THE BASIS OF AIR INFORMATION WITHOUT AN Y OTHER EVIDENCES. THE CASH DEPOSITS WERE MADE BY ASSESSEE OUT OF THE CASE WITHDRAWAL FROM TIME TO TIME. THE COMPLETE BOOKS OF ACCOUNT AND OTHER DOCUM ENTS WERE PRODUCED BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING. IN THE REMAND PROCEEDINGS THE ASSESSEE FILED ALL THE DETAILS AND EXPLAINED THE SOURCE AND GENUINENESS OF CASH DEPOSITED IN THE BANK. THE BOOK S OF ASSESSEE ARE AUDITED; THE AUDITED PROFIT AND LOSS ACCOUNT, BALAN CE-SHEET AND AUDIT REPORT WAS FILED BEFORE THE ASSESSING OFFICER. THE ASSESSE E ALSO FILED CASH SUMMARY BEFORE THE COMMISSIONER (APPEALS) AS WELL AS IN THE REMAND PROCEEDING BEFORE ASSESSING OFFICER ALONG WITH THE STATEMENT O F BANK WITH CASH SUMMARY FROM 1 APRIL 2010 TO 31 OF JANUARY 2011, SHOWING T HE CASH BALANCE, THE ASSESSEE HAD DEPOSITED THE CASH IN ITS BANK. IN SUP PORT OF HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED UPON THE DECISION OF TRIBUNAL IN M/S KRONER INVESTMENT LTD VERSUS DCIT IN ITA NO 5125/M/ 2013 DATED 10 APRIL 2015. ON THE OTHER HAND THE LEARNED DR FOR THE REVE NUE SUPPORTED THE ORDER ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 6 OF AUTHORITIES BELOW AND WOULD ARGUE THAT THE ASSES SEE FAILED TO PROVE THE SOURCE OF CASH DEPOSITS IN ITS BANK. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD CAREFULLY. THE AO MA DE THE ADDITION OF RS. 10,00,000/- ON THE BASIS OF AIR INFORMATION. THE AS SESSEE DURING THE ASSESSMENT PROCEEDING SPECIFICALLY CONTENDED THAT C ASH DEPOSIT OF RS. 5,00,000/- ON 15.11.2010 AND RS. 5,00,000/- ON 12.0 1.2011 IN THE CURRENT ACCOUNT MAINTAINED WITH M/S TAMILNAD MERCANTILE BAN K LTD., WERE DEPOSITED OUT OF CASH BALANCE IN HAND. THE SIMILAR CONTENTION WAS URGED BEFORE THE LD. CIT(A). THE ASSESSEE IN ADDITION TO ITS CONTENTION FURNISHED THE CASH BOOK TO SUBSTANTIATE THEIR CONTENTION. THE LD. CIT(A) CALLED THE REMAND REPORT OF AO ON FURNISHING COMPLETE BOOKS OF ACCOUNT. THE AO FURNISHED HIS REMAND REPORT DATED 28.11.2014. IN TH E REMAND REPORT, THE AO CONTENDED THAT A CASH BOOK WAS PRODUCED FOR THE FIR ST TIME BEFORE THE FIRST APPELLATE PROCEEDING WHICH CONSTRUED THE FRESH EVID ENCE. IN THE OBJECTION TO THE REMAND REPORT, THE ASSESSEE CONTENDED THAT THE CASH BOOK WAS SUBMITTED BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING. THE LD. CIT(A) INSTEAD OF EXAMINING THE CASH BOOK RELIED UP ON THE REMAND REPORT OF THE AO AND REJECTED THE CONTENTION OF ASSESSEE. 7. WE HAVE SEEN THAT THE ASSESSEE HAS FURNISHED COPY O F CASH BOOK BEFORE US SHOWING THE DEPOSIT OF RS. 5,00,000/- ON 15.11.2010 AND FURTHER RS. ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 7 5,00,000/- ON 12.01.2011 WITH TAMILNAD BANK (P) LTD . WE HAVE SEEN THAT THE ASSESSEE FILED DETAILED REPLY BEFORE THE AO ALO NG WITH CASH BOOK (PAGE 76 TO 82 OF PB) AND AGAIN BEFORE THE LD. CIT(A) VID E SUBMISSION DATED 21 ST JULY 2014 (PAGE 72 TO 75 OF PB). FROM THE ORDERS OF AUTHORITIES BELOW, WE NOTICED THAT THE ADDITION WAS MADE BY AO SOLELY ON THE BASIS OF AIR INFORMATION AND WITHOUT ANY CORROBORATIVE EVIDENCE. THE REVENUE/AO HAS NOT MADE ANY INDEPENDENT ENQUIRY. INSTEAD OF EXAMIN ING THE EVIDENCE FURNISHED BEFORE THE ASSESSING OFFICER, THE ASSESSI NG OFFICER MERELY RELIED UPON THE AIR INFORMATION WHICH IS NOT SUSTAINABLE I N THE EYES OF LAW. THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN KRONER INVE STMENT LTD. VS. DCIT (ITA NO. 5125/MUM/2013 DATED 10.04.2015 HELD THAT W HEN REVENUE HAS NOT MADE ANY ENQUIRY TO FIND OUT WHETHER THE AIR INFORM ATION WAS CORRECT OR NOT. THE ADDITIONS MADE SOLELY ON SUCH INFORMATION ARE NOT SUSTAINABLE IN THE EYES OF LAW. CONSIDERING THE FACT THAT THE ASSESSEE HAS PRODUCED BEFORE US THE DAY TO DAY CASH BOOK OF THE ASSESSEE SHOWING TH E DEPOSIT OF RS. 5,00,000/- ON 15.11.2010 AND AGAIN RS. 5,00,000/- O N 12.01.2011 WITH TAMILNAD BANK LTD., THE ADDITION U/S 68 IS NOT SUST AINABLE. WE ORDER ACCORDINGLY. IN THE RESULT, THE GROUND NO.2 OF APPE AL IS ALLOWED. 8. GROUND NO.3 RELATES TO ADDITION U/S 40A(2)(B) OF RS . 16,23,034/-. THIS DISALLOWANCE CONSIST OF RS. 12,15,000/- DISALLOWED ON ACCOUNT OF REMUNERATION PAID TO DIRECTORS AND RS. 4,08,034/- D ISALLOWED ON ACCOUNT OF ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 8 EXCESS INTEREST PAID TO RELATED PARTIES. THE LD. AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE HAD PAID REMUNERATION OF RS. 43,20,000 /- TO FIVE DIRECTORS OUT OF WHICH THE AO DISALLOWED RS. 12,15,000/-. THE ASS ESSEE HAS PAID INTEREST TO RELATED PARTIES OF RS.14,81,185/- OUT OF WHICH T HE AO DISALLOWED A SUM OF RS. 4,08,034/-. THE AO DISALLOWED INTEREST EXPENSES WHICH WAS IN EXCESS OF 12%. IT WAS FURTHER ARGUED THAT EACH DIRECTOR TO WH OM THE REMUNERATION WAS PAID WERE HAVING QUALIFICATION AND EXPERIENCE OF 20 TO 30 YEARS IN THE FIELD OF MANUFACTURING OF TEXTILE BUSINESS. THE DIRECTORS OF THE COMPANY HAVE ALSO PAID THE TAXES AT HIGHER RATES ON THEIR INCOME-TAX RETURN. THERE WAS NO TAX EVASION, DIRECTORS IN THE ASSESSEE-COMPANY AS BOTH ARE TAXED AT THE SAME RATE. THE ASSESSEE-COMPANY ALSO DECLARED DIVIDEND A ND PAID DIVIDEND DISTRIBUTION TAX. THUS, NO DISALLOWANCE CAN BE MADE U/S 40A(2)(A) OF THE ACT. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF TH E ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. IN DO-SAUDI SERVICES (TRAVELS) (P.) LTD. [2009] 310 ITR 306 (BOM.). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT PROCEEDING, THE AO NOTICED THAT THERE IS SUBSTANTIAL INCREASE I N THE DIRECTORS REMUNERATION DURING THE YEAR COMPARATIVE TO THE EAR LIER YEARS. THE DIRECTORS REMUNERATION IN FY 2009-10 WERE RS. 27,00,000/- WHI CH WERE INCREASED TO RS. 43,20,000/-. IN THE REPLY TO THE QUERIES DURING THE ASSESSMENT PROCEEDING, ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 9 THE ASSESSEE CONTENDED THAT THERE IS SUBSTANTIAL EX PANSION OF PRODUCTION FACILITY IN LAST YEAR; THE DIRECTORS WERE REQUIRED TO VISIT THE TARAPUR FACTORY FREQUENTLY. THUS, THE REMUNERATION OF FIVE DIRECTOR S WAS INCREASED. THE ASSESSEE-COMPANY PASSED RESOLUTION TO IN THE ANNUAL GENERAL MEETING (AGM) OF THE BOARD OF DIRECTORS. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY AO AND THE INCREASE IN DIRECTORS REMUN ERATION WAS RESTRICTED TO 15% OVER THE PRECEDING YEAR. THUS, THE AO DISALLOWE D A DIFFERENCE OF RS. 12,15,000/- U/S 40A(2)(A) OF THE ACT. THE LD. CIT(A ) CONFIRMED THE DISALLOWANCE HOLDING THAT THE ASSESSEE WAS BOUND TO SUBMIT THE DETAILS OF EXPANSION ALONG WITH DOCUMENTARY EVIDENCE IN THE FO RM OF COPY OF RESOLUTION OF BOARD FOR INCREASING THE REMUNERATION OF DIRECTORS. WE MAY NOTE THAT THE QUESTION WHETHER THE PAYMENT OF REMUN ERATION IS EXCESS OR UNREASONABLE IN A GIVEN CASE HAS TO BE EXAMINED KEE PING IN MIND, THE SERVICES RENDERED BY THE DIRECTORS WHO ARE DRAWING REMUNERATION. WHILE EXAMINING THE REMUNERATION, THE LEGITIMATE NEED OF THE BUSINESS OF THE ASSESSEE OR THE SERVICES RENDERED TO THE ASSESSEE I S ALSO TO BE KEPT IN MIND. AFTER APPLYING THE ABOVE REFERRED FACTS, IF IT IS F OUND THAT EXPENDITURE IS EXCESSIVE OR UNREASONABLE, EXCESS OR UNREASONABLE P ROPORTION OF THE EXPENDITURE IS TO BE DISALLOWED. WE HAVE TO KEPT IN MIND THE PROVISIONS OF SUB-SECTION 2(B) OF SECTION 40A OF THE ACT, THE BUR DEN IS UPON THE ASSESSEE TO ESTABLISH THAT SALARY PAID TO ITS DIRECTORS IS NOT EXCESSIVE OR UNREASONABLE. IN ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 10 THE PRESENT CASE, THE ASSESSEE HAS CATEGORICALLY CO NTENDED THAT THE BUSINESS OF ASSESSEE WAS SUBSTANTIALLY EXPANDED DUE TO THE C ONTRIBUTION OF SERVICES RENDERED BY THE DIRECTORS. THE NET PROFIT OF THE AS SESSEE HAS ALSO BEEN INCREASED. MOREOVER, THE DIRECTORS HAVE TO VISIT TH E ESTABLISHMENT OF THE ASSESSEE AT TARAPUR. THE HONBLE ALLAHABAD HIGH COU RT IN ABBAS WAZIR (P) LTD. VS. CIT 265 ITR 77 HELD THAT WHILE INVOKING TH E PROVISION OF SECTION 40A(2) OF THE ACT THE REASONABLENESS OF THE EXPENDI TURE FOR THE PURPOSE OF BUSINESS HAS TO BE SEEN FROM THE POINT OF VIEW OF B USINESSMEN AND NOT THAT OF REVENUE, THE APPROACH HAS TO BE SEEN THAT THE RE ASONABLENESS MUST BE LOOKED INTO FROM THE BUSINESSMENS POINT OF VIEW. 10. WE HAVE SEEN THAT THE TOTAL TURNOVER OF THE COMPANY WAS INCREASED FROM RS. 31.58 CRORES TO RS. 36.25 CRORES, THE GROSS PROFIT OF THE COMPANY FOR THE YEAR UNDER CONSIDERATION WAS ALSO INCREASED. THE NE T PROFIT HAS ALSO BEEN INCREASED. THE AO HAS NOT BROUGHT ANY MATERIAL ON R ECORD TO SHOW AS TO HOW THE REMUNERATION PAID TO THE DIRECTORS ARE EXCESSIV E, NO COMPARABLE ON THE BASIS OF REGION-CUM-INDUSTRY WAS REFERRED BY AO OR BY LD. CIT(A) WHILE SUSTAINING THE DISALLOWANCE. CONSIDERING THE PECULI ARITY OF THE FACT, WE DELETE THE ADDITION OF RS. 12,15,000/- U/S 40A(2)(B ) OF THE ACT. 11. THE NEXT PART OF THIS GROUNDS OF APPEAL RELATES TO THE DISALLOWANCE OF RS.4,08,034/- U/S 40A(2)(B) OF THE ACT. AGAINST THE DISALLOWANCE OF INTEREST EXPENSES OF RS. 4,08,034/-. IT WAS ARGUED THAT THE INTEREST WAS PAID WHICH ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 11 VARIED FROM 15% TO 18% TO DIFFERENT PARTIES. THERE WAS NO BASIS TO RESTRICT THE ALLOWANCE OF INTEREST @ 12% ONLY. THE LD. CIT(A ) ALSO CONFIRMED THE DISALLOWANCE OF INTEREST EXPENSES ON THE SIMILAR LI NES. THE ASSESSEE HAS NO MALICE INTENTION TO CLAIM MORE INTEREST EXPENSES. T HE EXPENSES ARE REASONABLE OR UNREASONABLE HAS TO BE JUDGED FROM TH E BUSINESSMENS POINT OF VIEW AND NOT BE DICTATED BY THE REVENUE AUTHORITIES . IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF CIT VS. SALES MAGNESITE (P.) LTD. [1995] 214 ITR 1 (BOM.). ON THE OTHER HAND, LD. DR FOR THE REVENUE SUPPORTED THE ORDERS OF AUTHORIT IES BELOW. IT WAS ARGUED THAT THE ASSESSEE FAILED TO PROVE THE NEXUS OF DIRE CTORS REMUNERATION AS WELL AS THE INTEREST EXPENSES. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO WHI LE FRAMING THE ASSESSMENT NOTICED THAT THE ASSESSEE HAS PAID INTER EST TO THE RELATED PARTY @ 15% TO 18%. THE AO DISALLOWED THE INTEREST PAYMENT IN EXCESS OF 12% AND ACCORDINGLY A DIFFERENCE OF RS. 4,08,034/- WAS WORK ED OUT. DURING THE FIRST APPELLATE PROCEEDING, THE DISALLOWANCE WAS CONFIRME D. THE HONBLE ALLAHABAD HIGH COURT IN ABBAS WAZIR (P) LTD. VS. CI T 265 ITR 77 HELD THAT WHILE INVOKING THE PROVISION OF SECTION 40A(2) OF T HE ACT THE REASONABLENESS OF THE EXPENDITURE FOR THE PURPOSE OF BUSINESS HAS TO BE SEEN FROM THE POINT OF VIEW OF BUSINESSMEN AND NOT THAT OF REVENUE, THE APPROACH HAS TO BE SEEN ITA NO.719 6/M/2014- SUMANGAL SILK MILLS PVT. LTD. 12 THAT THE REASONABLENESS MUST BE LOOKED INTO FROM TH E BUSINESSMENS POINT OF VIEW. WE HAVE SEEN THAT THE ASSESSEE PAID INTEREST @ 15% TO 18% TO RELATED PARTIES. IN OUR CONSIDERED OPINION THE INTEREST PAI D BY THE ASSESSEE IS NOT UNREASONABLE. THE ASSESSING OFFICER HAS NOT GIVEN A NY SPECIFIC REASON AS TO WHY THE INTEREST PAID BY ASSESSEE IS UNREASONABLE. CONSIDERING THE PECULIARITY OF THE FACTS OF THE CASE THE DISALLOWAN CE OF RS. 4,08,034/- IS DELETED. HENCE, GROUND NO.3 OF THE APPEAL IS ALLOW ED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DAY OF JULY 2017. SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 11/07/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/