Shah Muradas Shilpabhai & Co., Ahmedabad V. The Income Tax Officer, Ward-1(2)(4), Ahmedabad

ITA 89/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8128 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 10-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Assessee Lawyers: BHADRESH C G
• Section: 143(3); 147; 148; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA.NO.89/AHD/2017 / ASSTT. YEAR: 2011-2012 SHAH MURARDAS SHILPALBHAI & CO. 1488/10, OLD MADHUPURA OUTSIDE DEHI DWARWAJA AHMEDABAD 380004. PAN : AADFS 1816 R VS ITO, WARD-1(2)(4) AMBAWADI AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI BHADRESH C.G. REVENUE BY : SHRI SAURABH SINGH, SR.DR / DATE OF HEARING : 30/05/2018 / DATE OF PRONOUNCEMENT: 04 /06/2018 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF LD.CIT(A)-10, AHMEDABAD DATED 17.10.2016 PASSED FOR THE ASSTT.YEAR 2011-12. 2. SOLITARY GRIEVANCE OF THE ASSESSEE RELATES TO RE STRICTION OF PAYMENT OF INTEREST TO 12% INSTEAD OF INTEREST AT THE RATE OF 15% PAID BY THE ASSESSEE TO THE PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI RM IS A TRADER IN SUGAR KANDSARI ON WHOLE-SALE AND SEMI-WHOLE SALE BASIS. IT FILED ITS RETURN OF INCOME ON 31.8.2011 DECLARING TOTAL INCOME AT RS.96 ,980/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A SSESSMENT WAS COMPLETED ITA NO.89/AHD/2017 2 UNDER SECTION 143(3) ON 22.2.2014 DETERMINING TOTAL INCOME AT RS.1,02,080/-. SUBSEQUENTLY, IT WAS NOTICED BY THE AO THAT ASSESSE E HAS PAID EXCESS INTEREST PAYMENT TO THE PERSONS COVERED UNDER SECTION40A(2)( B) OF THE ACT, AND ACCORDINGLY CASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 147 BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY PAYMENT OF INTEREST PAID TO PERSONS COVER ED UNDER SECTION 40A(2)(B) BE NOT RESTRICTED TO 12%. IT WAS EXPLAIN ED BY THE ASSESSEE THAT THE ASSESSEE HAS PAID INTEREST RANGING FROM 12% TO 15% NOT ONLY TO THE PERSONS COVERED UNDER SECTION 40A(2)(B) BUT ALSO THE PERSON S NOT COVERED UNDER THE SAID PROVISIONS. AS FOR EXAMPLE, THE ASSESSEE HAS PAID INTEREST AT THE RATE OF 15% TO KALUPUR COMMERCIAL CO-OP BANK, WHICH WAS THE RATE PREVALENT AT THE TIME. BESIDES THAT THE ASSESSEE HAS ALSO COLLECTED INTEREST AT THE RATE OF 15% FROM THE PERSONS COVERED UNDER SECTION 40A(2)(B). IN OTHER WORDS, THE ASSESSEE-FIRM HAS PAID INTEREST AT THE RATE OF 15% AND HAS RECOVERED INTEREST AT THE RATE OF 15% WHICH INDICATED THAT PREVAILING MAR KET RATE WAS 15%, AND THEREFORE, THERE WAS NO QUESTION OF EXCESS AND UNRE ASONABLE PAYMENT OF INTEREST. THIS SUBMISSION OF THE ASSESSEE DID NOT CONVINCE THE AO AND THEREFORE, AO RESTRICTED THE RATE OF INTEREST AT TH E RATE OF 12%. THE AGGRIEVED ASSESSEE WENT IN APPEAL BEFORE THE LD.CIT(A) WHO CO NFIRMED THE ACTION OF THE AO. 4. THE ASSESSEE IS NOW BEFORE THE TRIBUNAL. BEFORE US THE LD.COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. THE LD.COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTION TOWARDS THE STATEMENT OF INTEREST PAID TO RELATED AND UNRELATED PARTIES. AS PER THE STATEMENT ASSESSEE HAS PAID INTEREST AT THE RATE OF 15% TO THE PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT WHEREAS INTEREST OF AT THE RAT E OF 12% TO 15% WAS PAID TO THE UNRELATED PARTIES. INTEREST PAID TO KALPUR COM MERCIAL CO-OP BANK WAS AT 15%, WHICH WAS THE RATE PREVALENT AT THE TIME. THE ASSESSEE HAS ALSO SHOWN A ITA NO.89/AHD/2017 3 STATEMENT SHOWING THE RATE OF INTEREST RECEIVED BY THE ASSESSEE FROM RELATED AND UNRELATED PARTIES AT 15%. IT IS PRAYED THAT SI NCE INTEREST PAID TO THE RELATED PERSONS IS LITTLE HIGHER AND IN COMMENSURATE WITH T HE MARKET RATE, IT CANNOT BE VIEWED AS EXCESSIVE OR REASONABLE SO AS TO ATTRACT PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME TAX. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES, AND SUBMITTED TH AT WHEN THE ASSESSEE IS ABLE TO GET LOAN AT LOWER RATE FROM THE OUTSIDERS, THEN THERE IS NO JUSTIFICATION TO PAY HIGHER RATE OF INTEREST TO THE RELATIVES COV ERED UNDER SECTION 40A(2)(B) OF THE ACT. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE TH ROUGH THE RECORD CAREFULLY. SECTION 40A(2)(B) CONTEMPLATES THAT IF A N ASSESSEE INCURS EXPENDITURE FOR AVAILING THE SERVICES OF PERSONS WH O ARE CLOSELY ASSOCIATED WITH THE ASSESSEE-COMPANY OR THE MANAGEMENT, AND MA DE PAYMENT TO SUCH PERSONS IN EXCESS TO THE MARKET RATE, THEN, THAT EX TRA PAYMENT WILL NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IN OTHER WOR DS, IF SERVICE IS BEING AVAILED BY AN ASSESSEE FROM THE PERSON FALLING UNDE R SECTION 40A(2)(B), AND THE SIMILAR SERVICE WAS AVAILED FROM OPEN MARKET ON A LESSER RATE, THEN, THE DIFFERENCE BETWEEN THOSE RATES COULD NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IN THE INSTANT CASE, ACCORDING TO THE A O, THE ASSESSEE HAS PAID INTEREST AT THE RATE OF 15% TO THE RELATED PARTIES AND 12% TO THE UNRELATED PARTIES, AND SO THE DIFFERENCE OF 3% IS TO BE TREAT ED AS UNREASONABLE AND EXCESSIVE WITHIN THE MEANING OF SECTION 40A(2)(B) O F THE ACT. IN OTHER WORDS, ACCORDING TO THE AO, THE ASSESSEE OUGHT TO HAVE PAI D INTEREST AT THE RATE OF 12% AND NOT 15%. WE ARE NOT CONVINCED WITH THIS OB SERVATION OF THE REVENUE AUTHORITIES, MORE SO WHEN THE UNDISPUTED FA CT IS THAT ASSESSEE HAS PAID 15% OF INTEREST TO ONE OF UNRELATED PARTIES VI Z. KALPUR COMMERCIAL COOPERATIVE BANK LTD. AND IT HAS BEEN RECEIVING INT EREST AT THE RATE OF 15%. THEREFORE, IT WILL BE CONVENIENT TO PRESUME THAT TH E RATE OF INTEREST CHARGED ITA NO.89/AHD/2017 4 AND RECEIVED BY THE ASSESSEE IS JUSTIFIABLE AND IN COMMENSURATE WITH PREVAILING MARKET RATE. THE LD.COUNSEL FOR THE ASS ESSEE CONTENDED THAT THE BANK INTEREST WAS IN THE RANGE OF 15% AND IN RESPEC T THEREOF, THE ASSESSEE WAS REQUIRED TO PRODUCE SECURITY AGAINST SUCH LOANS, WH EREAS THE LOANS AVAILED BY THE ASSESSEE WERE UNSECURED LOANS. BY TAKING OF LOA NS FROM RELATED PERSONS, IT COULD AVOID A LOT OF FORMALITIES. IN VIEW OF ABOVE, WE ARE OF THE VIEW THAT THE PAYMENT OF INTEREST AT A LITTLE HIGHER RATE TO THE PERSONS EVEN IF COVERED UNDER SECTION 40A(2)(B) CANNOT BE TERMED AS EXORBITANT WH EN THE PREVALENT MARKET RATE OF INTEREST IS BEING LOOKED INTO, AND THERE IS NO QUESTION OF UNDUE BENEFIT BEING GIVEN TO THE RELATED PERSONS. WE FIND NO JUST IFIABLE REASONS TO RESTRICT THE INTEREST RATE AT 12% BY THE REVENUE AUTHORITIES . ACCORDINGLY, DISALLOWANCE MADE BY THE REVENUE IS DELETED, AND TH E GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 4 TH JUNE, 2018 AT AHMEDABAD. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 04 /06/2018