Atul Jain, Malerkotla V. Income Tax Officer, Malerkotla

ITA 891/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8920 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 08-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Depreciation; Fair market value

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, SMC, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 891/CHD/2016 ASSESSMENT YEAR: 2011-12 SH. ATUL JAIN, VS. THE ITO, WARD-1, S/O SH. SAT PAUL JAIN CHANDIGARH PROP. M/S KRISHNA AGENCIES, MALERKOTLA PAN NO. AEBPJ2136K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ATUL GOYAL RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 17.11.2016 DATE OF PRONOUNCEMENT : 07.12.2016 ORDER THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAI NST THE ORDER OF LD. CIT(A)-2, LUDHIANA DATED 20.6.2016 FOR ASSESSMENT Y EAR 2011-12. 2. I HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 3. ON ISSUE NO.1, THE ASSESSEE CHALLENGED THE PART ADDITION MADE U/S 40A(2)(B) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'TH E ACT') RESTRICTING THE CLAIM OF INTEREST @ 15% AS AGAINST 18% CLAIMED BY T HE ASSESSEE. THE 2 ASSESSEE IS ENGAGED IN THE BUSINESS OF WHOLE SALE D EALER OF PLASTIC GOODS COOKERY AND UTENSILS. DURING THE PERIOD UNDER CONSI DERATION THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS RECEIVED UNSECURE D LOANS FROM VARIOUS PERSONS AND PAID INTEREST TO THEM @ 18%. THE ASSESS EE WAS ASKED TO EXPLAIN AS TO WHY RATE OF INTEREST @ 18% GIVEN TO F AMILY MEMBERS BE NOT RESTRICTED TO 12% AND ADDITIONAL RATE OF 6% MAY NOT BE DISALLOWED. THE ASSESSING OFFICER IN THE ABSENCE OF ANY SPECIFIC RE PLY DISALLOWED INTEREST TO THE EXTENT OF 6% AND MADE ADDITION OF RS. 1,55,781/ -. 4. THE ASSESSEE CHALLENGED THE ABOVE ADDITION BEFOR E THE LD. CIT(A) AND IT WAS SUBMITTED THAT ASSESSING OFFICER WAS REQ UIRED TO RECORD A FINDING AS TO WHETHER THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE IN RELATION TO ANY ONE OF THE THREE REQUIREMENTS PRESC RIBED U/S 40A(2)(B) OF THE I. T. ACT. IT WAS SUBMITTED THAT ASSESSEE PAID INTEREST TO THE PERSONS AND THE FINANCIAL INSTITUTION I.E. STATE BANK OF PATIAL A BRANCH, MALERKOTLA AND CASH CREDIT FACILITY FROM STATE BANK OF PATIALA HA S BEEN AVAILED VIDE LETTER OF ARRANGEMENT DATED 29.10.2010 VIDE WHICH INTEREST @ 15.20% PER ANNUM HAS BEEN AGREED TO BE PAID BY THE ASSESSEE TO THE B ANK. THE ASSESSING OFFICER HAS FAILED TO RECORD A FINDING WITH REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES OR FACILITIES AVAILED BY THE ASSESSEE. IT WAS, THEREFORE, SUBMITTED THAT INTEREST PAID BY THE ASSESSEE IS REA SONABLE. 5. THE LD. CIT(A) CONSIDERING THE MATERIAL ON RECOR D NOTED THAT ASSESSEE HAS TAKEN LOAN FROM PERSONS COVERED U/S 40 A(2)(B) OF THE ACT WHICH WAS UNSECURED LOANS. ASSESSING OFFICER HAS N OT GIVEN ANY REASON FOR ADOPTING RATE OF INTEREST @ 12%. IT WAS ALSO A FA CT THAT THESE LOANS FROM 3 RELATIVES ARE AVAILABLE ON NEED BASIS WITHOUT ANY SECURITY OR DOCUMENTATION / PROCESSING FEE. IT WAS ALSO NOTED T HAT BANK PROVIDE SECURED LOANS ON THE BASIS OF MORTGAGE OF PROPERTY OR OTHER ASSETS AT RATE OF INTEREST VARYING FROM 12% TO 14%. THERE ARE NO RIS K FACTORS INVOLVED IN SUCH LOANS. THE BANKS ALSO GIVES LOANS SUBJECT TO P AYMENT OF PROCESSING FEE AND LEGAL FEE ALONG WITH EXTENSIVE DOCUMENTATIO N BUT IN THE CASE OF UNSECURED LOANS NO SUCH REQUIREMENTS ARE THERE. THE RE IS NO OTHER UNSECURED LOANS ON WHICH LOWER RATE OF INTEREST IS PAID. THE LD. CIT(A), THEREFORE, FOUND THAT IN THESE CIRCUMSTANCES IT WOU LD BE FAIR AND REASONABLE TO HOLD THAT INTEREST WAS PAID ON UNSECURED LOANS B Y THE ASSESSEE AT THE MARKET RATE. THE LD. CIT(A), HOWEVER, DIRECTED TO RESTRICT THE DISALLOWANCE @ 15% AS AGAINST THE CLAIM OF ASSESSEE @ 18%. THIS GROUND WAS PARTLY ALLOWED. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM OF THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. THE LD. CIT(A) IN PRINCIPLE HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE INTEREST PAID BY THE ASSESSEE ON UNSECURED LOANS IS AT THE MARKET RATE. THE LD. CIT(A) ALSO N OTED THAT IN THE CASE OF SECURED LOANS THERE ARE VARIOUS EXPENSES TO BE INCU RRED AND DOCUMENTS TO BE COMPLETED BUT IN CASE OF UNSECURED LOANS THERE IS NO SUCH REQUIREMENT, THEREFORE, ON THE FACE OF THESE FINDINGS OF THE LD. CIT(A), IT IS CLEAR THAT THE ASSESSING OFFICER FAILED TO RECORD A FINDING WH ETHER INTEREST EXPENSES IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MAR KET VALUE OF THE GOODS OR SERVICES OR FACILITIES AVAILED BY THE ASSESSEE. IN THE ABSENCE OF ANY SPECIFIC MATERIAL AGAINST THE ASSESSEE AND IN THE L IGHT OF THE CONCLUSION OF THE LD. CIT(A), THE PART ADDITION SUSTAINED BY THE AUTHORITIES BELOW IS NOT 4 JUSTIFIED. I ACCORDINGLY SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. THIS GROUND OF THE APPE AL OF THE ASSESSEE IS ALLOWED. 7. ON SECOND ISSUE, THE ASSESSEE CHALLENGED THE ORD ER OF THE CIT(A) IN SUSTAINING THE DISALLOWANCE ON ACCOUNT OF PERSONAL USE @ 20% (1.5 TH OF THE CAR EXPENSES ETC.). THE ASSESSING OFFICER NOTED TH AT ASSESSEE WAS USING CAR AND SCOOTER FOR HIS PERSONAL PURPOSE AND NO SEPARAT E ACCOUNTS HAD BEEN MAINTAINED. THE ASSESSING OFFICER ASKED THE ASSESSE E TO STATE WHY 1/5 TH OF THE EXPENSES LIKE CAR DEPRECIATION, INTEREST, CAR L OAN, CAR INSURANCE DEPRECIATION ON SCOOTER AND MISC. EXPENSES MAY NOT DISALLOWED FOR PERSONAL USER. THE ASSESSEE DID NOT FILE ANY REPLY. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED RS. 17,312/- AFTER GIVING TH E CREDIT OF RS. 35,009/- AS THE ASSESSEE HIMSELF DEBITED THESE EXPENSES ON A CCOUNT OF PERSONAL USE. FURTHER, IT WAS FOUND ASSESSEE HAS BEEN USING TELEP HONE FOR PERSONAL PURPOSES, ASSESSING OFFICER DISALLOWED RS. 3,303/- AFTER GIVING CREDIT OF RS. 4,129/- AS ASSESSEE HIMSELF DEBITED THESE EXPEN SES. THE LD. CIT(A) CONFIRMED THE ADDITION BECAUSE THE ASSESSEE DID NOT MAINTAIN ANY LOGBOOK AND CALL DETAILS ETC. AS REQUIRED. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I DO NO T FIND ANY MERIT IN THIS GROUND OF THE APPEAL OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS ALREADY DISALLOWED THES E EXPENSES @ 10%. THERE IS NO MERIT IN THIS CONTENTION OF THE LD. COU NSEL FOR THE ASSESSEE BECAUSE ASSESSING OFFICER HAS ALREADY GIVEN BENEFIT OF THE EXPENSES DISALLOWED BY THE ASSESSEE HIMSELF WHILE SUSTAINING THE ADDITIONS OF RS. 5 17,312/- AND RS. 3,303/-. THE ASSESSEE DID NOT FILE ANY EXPLANATION BEFORE THE ASSESSING OFFICER. THEREFORE, AFTER DISCUSSION WITH ASSESSEES COUNSEL THIS PART OF DISALLOWANCE HAVE BEEN MADE, IT WOULD SHOW ASSESSEE HAS AGREED FOR PART ADDITION ON THIS ISSUE AFTER AVAIL ING DEDUCTION OF AMOUNT ALREADY DISALLOWED BY THE ASSESSEE. FURTHER, IT IS A FACT THAT ASSESSEE HAS NOT MAINTAINED ANY LOG BOOK AND CALL DETAILS ETC., THEREFORE, ADDITION IS JUSTIFIED ON THIS ISSUE. THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 7 TH DECEMBER, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR