ACIT, Ludhiana V. M/s Guys & Gals International Marketing, Ludhiana

ITA 895/CHANDI/2010

• Counselvise Citation: 89521514 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 07-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 895/CHD/2010 ASSESSMENT YEAR: 2006-07 ACIT, C-V, V M/S GUYS & GALS INTERNATIONAL INTERNATIONAL MARKETING LUDHIANA. LUDHIANA. PAN: AAFFG-6000R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AKHILESH GUPTA RESPONDENT : NONE DATE OF HEARING : 26.09.2012 DATE OF PRONOUNCEMENT : 27.09.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 18.03.2010 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT'). 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 7,50,511/- MADE BY THE A.O. ON ACCO UNT OF INTEREST PAID TO M/S CHADDA MOTORS IN VIEW OF THE PROVISIONS OF SECT ION 40A(2)(A) OF THE INCOME-TAX ACT, 1961. 2. THAT THE ORDER OF THE CIT(A)-II BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'DR' REFERRED TO PAGE 1 PARA 2 OF THE ASSESSMENT ORDER, AND IN 2 THE FINAL ANALYSIS, PLACED RELIANCE ON THE ORDER PA SSED BY THE AO. NONE ATTENDED ON BEHALF OF THE APPELLANT. 4. WE HAVE PERUSED THE RELEVANT DETAILS AVAILABLE O N RECORD, INCLUDING THE ASSESSMENT ORDER AND THE APPE LLATE ORDER PASSED BY THE LOWER AUTHORITIES. THE AO, MAD E AN ADDITION OF RS.9,57,650/- IN RESPECT OF INTEREST PA ID TO M/S CHADHA MOTORS BEING A RELATIVE WITHIN THE MEANING O F SECTION 40A(2)(B) READ WITH SECTION 40A(2)(A) OF TH E ACT. THE CIT(A), ON CONSIDERATION OF THE STATUTORY POSITION AND FACTUAL MATRIX OF THE CASE, PARTLY ALLOWED THE APPE AL OF THE ASSESSEE. FINDINGS OF THE LD. CIT(A) ARE CONTAINED IN PARA 3 TO 3.3 OF THE ORDER, WHICH IS REPRODUCED HEREUNDER: 3. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF T HE ID. COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. UNDE R THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT CERTAIN DISALLOWANCE C OULD BE MADE ONLY IF FOR THE EXPENDITURE INCURRED BY AN ASSESSEE ON ACCO UNT OF THE PAYMENTS MADE TO ANY OF THE PERSONS COVERED UNDER THE PROVIS IONS OF SECTION 40A(2)(B) OF THE ACT THE A.O. IS OF THE OPINION THA T SUCH EXPENDITURE WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THERE FROM. IN SUCH A CASE ALSO ONLY THAT MUCH EXPENDITURE IS NOT TO BE ALLOWED AS DEDUCTION WHICH IS CONSIDERED EXCESSIVE OR UNREASONABLE. IN THE CASE OF THE APPEL LANT IT IS NOT SHOWN AND EVEN OTHERWISE THERE IS NOTHING ON RECORD TO SHOW T HAT THE RATE AT WHICH THE INTEREST AS PAID BY THE APPELLANT TO M/S CHADHA MOT ORS WAS EXCESSIVE OR UNREASONABLE CONSIDERING THE FAIR MARKET RATE OF IN TEREST FOR SUCH AMOUNTS DURING THE RELEVANT PERIOD. WITHOUT PROVING AS ABOV E, IN MY OPINION, NO DISALLOWANCE U/S 40A(2)(A) OF THE ACT COULD BE MADE . THE FACT THAT THE APPELLANT HAS GIVEN INTEREST FREE ADVANCE TO SHRI A SHOK SACHDEVA OF DELHI COULD NOT BE MADE THE BASIS FOR DISALLOWING THE INT EREST AS ABOVE. THERE COULD HAVE BEEN A CASE FOR EXAMINING IF ANY PART OF THE INTEREST COULD BE 3 DISALLOWED ON ACCOUNT OF THIS INTEREST FREE ADVANCE . HOWEVER THIS COULD, IN NO WAY BE MADE THE BASIS FOR DISALLOWING THE K I NTEREST PAID TO THE OTHER SISTER CONCERN APPLYING THE PROVISIONS OF SEC TION 40A(2)(A)OF THE ACT. 3.1 IN ADDITION TO THE ABOVE AS EXPLAINED IN THE WR ITTEN SUBMISSIONS OF THE LD. COUNSEL THE AMOUNT OF INTEREST OF RS.9,57,650/- HAS BEEN DULY SHOWN IN THE INCOME OF M/S CHADHA MOTORS FOR THE PERIOD 1 .4.2005 TO 31.3.2006. AS PER THE COPY OF THE ACKNOWLEDGEMENT OF THE RETUR N FILED BY M/S CHADHA MOTORS, FOR THE ASSESSMENT YEAR 2006-07 IT HAD SHOW N INCOME FROM BUSINESS OR PROFESSION AT RS.13,89,335/-. THIS INCL UDED INTEREST INCOME OF RS.9,57,6507- MENTIONED ABOVE. THUS M/S CHADHA MOTO RS HAS ALREADY PAID TAXES ON THIS INCOME IN ITS HANDS. THIS FACT COUPLE D WITH DISCUSSIONS MADE IN THE PRECEDING PARAGRAPHS WOULD FURTHER GO IN FAVOUR OF THE APPELLANT IN AS MUCH AS THE DISALLOWANCE WOULD NOT BE JUSTIFIED. 3.2 AS ALREADY MENTIONED, THE APPELLANT HAS ADMITTED BE FORE THE A.O. THAT THE INTEREST FREE ADVANCE MADE TO SHRI ASHOK S ACHDEVA WAS ON ACCOUNT OF SOME SOCIAL OBLIGATION ETC. THEREFORE, CLEARLY T HIS AMOUNT WAS NOT ADVANCED ON ACCOUNT OF ANY BUSINESS EXPEDIENCY ETC. KEEPING IN VIEW THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. CORRESPONDING INTEREST IS REQUIRED TO BE DISALLOWED HERE. @ 12% THIS WOULD COME TO RS. 1,20,000/- 3.3 IN VIEW OF THE ABOVE DISCUSSION THE DISALLOWANCE OF RS. 1,20,000/- IS CONFIRMED THOUGH FOR DIFFERENT REASON S, AND THE DISALLOWANCE OF RS.8,37,650/- IS DELETED AND THIS GROUND OF APPE AL IS PARTLY ALLOWED. 5. HAVING REGARD TO THE FINDINGS OF THE AO, IN THE RELEVANT ASSESSMENT ORDER AND FINDINGS OF THE CIT(A ) ON THE ISSUE IN QUESTION, WE ARE INCLINED TO ACCEPT FINDIN GS OF THE CIT(A). THE AO, HAS FAILED TO APPRECIATE THE RELEVA NT PROVISIONS OF THE ACT, BEFORE INVOKING THE SAME FOR THE PURPOSE OF MAKING THE IMPUGNED ADDITION. IN VIEW O F THIS, FINDINGS OF THE CIT(A) ARE UPHELD AND GROUND NO.1 O F THE REVENUE IS DISMISSED. 4 6. GROUND NOS. 2 & 3 ARE GENERAL IN NATURE AND NEED NO SEPARATE ADJUDICATION. ACCORDINGLY, THE SAME ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPT.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH SEPT.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH