Shri Dr. Jayantilal H.Shah,HUF, Baroda V. The Dy.CIT.,Circle-2(1), Baroda

ITA 771/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85735 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.771/AHD/2011 ( / ASSESSMENT YEAR : 2006-07) DR.JAYANTILAL H SHAH (HUF) 48, SUVARNAPURI SOCIETY CHIKUVADI JETALPUR ROAD BARODA / VS. THE DCIT CIRCLE-2(1) BARODA ./ ./ PAN/GIR NO. : AACHS 4084 C ( # / APPELLANT ) .. ( $% # / RESPONDENT ) #& / APPELLANT BY : MS.URVASHI SHODHAN, AR $% #'& / RESPONDENT BY : SHRI B.L. YADAV, SR.DR ()'* / DATE OF HEARING 19/02/2015 +,-.'* / DATE OF PRONOUNCEMENT 26/02/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-II, BARODA (CIT(A) IN SHORT) DATED 07/12/2010 PERTAINING TO ASSESSMENT YEAR (AY) 2006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEA L:- 1. LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING DISALLOWANCE OF RS.8,23,004/- MADE BY AO OF INTERES T EXPENDITURE ITA NO.771 /AHD /2011 DR. JAYANTILAL H SHAH (HUF) VS. DCIT ASST.YEAR 2006-07 - 2 - CLAIMED BY THE APPELLANT BY HOLDING THAT INTEREST P AID TO PERSONS COVERED UNDER THE PROVISIONS OF SECTION 40A(2)(B) W AS AT A VERY HIGH RATE. THE ADDITION BEING WITHOUT ANY MERITS A ND JUSTIFICATION REQUIRES TO BE QUASHED. 2. THE ORDER PASSED BY CIT(A) IS WITHOUT PROPERLY APPR ECIATING THE FACTS AND THAT HE FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPELLANT BY CONFIRMING DISALLOWANCE OF INTEREST TH AT OUGHT TO HAVE BEEN ALLOWED AS CLAIMED BY THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT TH E TIME OF OR BEFORE THE HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 27/10/2008, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.8 ,23,004/- BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE FEELING AGGRIEVED BY THE ORDER OF THE AO, PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS, D ISMISSED THE APPEAL. NOW, THE ASSESSEE IS FURTHER IN APPEAL BEFORE US. 3. THE LD.COUNSEL FOR THE ASSESSEE MS.URVASHI SHODH AN VEHEMENTLY ARGUED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIE D IN MAKING THE DISALLOWANCE. SHE SUBMITTED THAT THE AO ADOPTED TH E INTEREST @ 12%. SHE SUBMITTED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT ITA NO.771 /AHD /2011 DR. JAYANTILAL H SHAH (HUF) VS. DCIT ASST.YEAR 2006-07 - 3 - THE ASSESSEE HAS EARNED INTEREST @ 24% AND WHILE MA KING THE PAYMENT, THE ASSESSEE HAS PAID THE INTEREST @ 12%, 13%, 19%, 21% & 22%. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRE- REQUISITE FOR INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT IS T HAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE(B) OF THIS SUB-SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITU RE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE FOR WHICH THE PAYMENT IS MADE. SHE SUBMITTED THAT THE AO HAS NOT GIVEN ANY FINDING AS TO HOW THE INTEREST PAID BY THE ASSESSEE IS EXCE SSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE. SHE SUBMI TTED THAT IN THE ABSENCE OF SUCH FINDING, NO DISALLOWANCE CAN BE MADE BY INV OKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. FURTHER, THE LD.C OUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF COORDINATE BENCH (ITAT A BENCH LUCKNOW) RENDERED IN THE CASE OF SUNLIGHT FOUNDRY VS. ITO BE ARING ITA NO.611(LKW.)/2010 FOR AY 2006-07, DATED 6/1/2011. SHE DREW OUR ATTENTION TOWARDS PARA-5 OF THE SAID DECISION OF TH E COORDINATE BENCH WHICH READS AS UNDER:- 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE DI SALLOWANCE OF INTEREST PAID TO THE PARTNERS RELATIVES IN EXCESS OF 12% IS UNTENABLE AS THE AMOUNT OF MONEY INVESTED BY THESE PERSONS AS LOAN IN THE FIRM HAS BEEN UTILIZED FOR THE PURPOSES OF ASSESSEES BUSINESS AND THE RATE OF INTEREST PAID IS REASONABL E KEEPING IN VIEW THE MARKET RATE OF INTEREST. IT IS NOT THE CASE O F THE AO THAT THE ITA NO.771 /AHD /2011 DR. JAYANTILAL H SHAH (HUF) VS. DCIT ASST.YEAR 2006-07 - 4 - BORROWED FUNDS WERE NOT UTILIZED IN ASSESSEES BUSI NESS. THE AO HAS ALSO NOT BROUGHT ON RECORD THAT THE MARKET RATE OF INTEREST WAS LESS THAN 24%. IT IS AN ADMITTED FACT THAT THESE L OANS ARE UNSECURED AND THEREFORE, THERE WAS NO JUSTIFICATION IN MAKING ANY DISALLOWANCE OUT OF INTEREST PAID ON THESE LOANS. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT NO DISALLOWANCE IS CALLED FOR. ACCORDING LY, WE HOLD THAT THE INTEREST PAID AT THE RATE OF 24% TO SIX DEPOSIT ORS WAS REASONABLE AND THEREFORE, THE DISALLOWANCE OF RS.1, 66,015 SUSTAINED BY THE LD.CIT(A) DESERVES TO BE DELETED. IN THAT VIEW OF THE MATTER, WE DELETE THE ADDITION OF RS.1,66,015. 3.1. RELIANCE IS ALSO PLACED ON THE DECISION OF THE COORDINATE BENCH (ITAT D BENCH AHMEDABAD) IN ASSESSEES WON CASE B EARING ITA NO.4097/AHD/2008 FOR AY 2005-06), DATED 03/04/2009. 3.2. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS RELIED UPON BY THE LD.COUN SEL FOR THE ASSESSEE. WE FIND THAT THE AO HAS INVOKED THE PROVISIONS OF S ECTION 40A(2)(B) OF THE ACT, HOWEVER, THE HAS NOT GIVEN ANY FINDING AS TO HOW THE RATE OF INTEREST CLAIMED BY THE ASSESSEE IS EXCESSIVE TO TH E FAIR MARKET VALUE. THE AO OUGHT TO HAVE GIVEN A SPECIFIC FINDING WITH REGARD TO THE UNREASONABLENESS AND EXCESSIVE NATURE OF THE EXPEND ITURE CLAIMED BY THE ITA NO.771 /AHD /2011 DR. JAYANTILAL H SHAH (HUF) VS. DCIT ASST.YEAR 2006-07 - 5 - ASSESSEE. THE ASSESSEE HAS RELIED ON VARIOUS JUDIC IAL PRONOUNCEMENTS BEARING THE RATE OF INTEREST ADOPTED BEING REASONAB LE AND VARIES FROM 15% TO 18%. IN THE AY 2005-06, THE COORDINATE BENCH IN ASSESSEES OWN CASE(SUPRA) HAS ALLOWED THE INTEREST @18% BEING REA SONABLE, THEREFORE ADOPTING THE SAME VIEW FOR THIS YEAR ALSO, WE HEREB Y DIRECT THE AO TO ALLOW DEDUCTION @18% OF THE INTEREST EXPENDITURE. THUS, GROUNDS RAISED IN THE ASSESSEES APPEAL ARE ALLOWED IN THE TERMS A S INDICATED HEREINABOVE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN THE TERMS AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE COURT ON THURSDAY, THE 26 TH DAY OF FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 26/ 02 /2015 2*..,(.../ T.C. NAIR, SR. PS ITA NO.771 /AHD /2011 DR. JAYANTILAL H SHAH (HUF) VS. DCIT ASST.YEAR 2006-07 - 6 - !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $% # / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-II, BARODA 5. 7(8 $45 , *45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<) / GUARD FILE. ! / BY ORDER, %7$ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 19.2.15 (DICTATION-PAD 7- P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..19.2.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.26.2.25 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26.2.25 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER