M/s Dhruva & Co, Ludhiana V. ACIT, Ludhiana

ITA 897/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8480 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Business income; Rectification of order

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI H.L.KARWA, HONBLE VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 897/CHD/2015 ASSESSMENT YEAR: 2008-09 M/S DHRUV & COMPANY, VS THE ACIT, B-30/2592/1, CIRCLE 1, BABA GAJJA JAIN COLONY, LUDHIANA. MOTI NAGAR, LUDHIANA. PAN: AAAFD8101D (APPELLANT) (RESPONDENT APPELLANT BY : SHRI HARI OM ARORA RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 18.02.2016 DATE OF PRONOUNCEMENT : 19.02.2016 O R D E R PER H.L.KARWA,V.P. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(APPEALS)-I, LUDHIANA DATED 30. 09.2015 RELATING TO FOR ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE ASSESSEE HAS TAKEN THE FOLLO WING GROUNDS : 1. THAT THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN RESTR ICTING THE RATE OF INTEREST TO 15% AS AGAINST 18% CLAIMED BY THE AP PELLANT. THE DISALLOWANCE OF INTEREST @ 3% IS MISPLACED, UNTENAB LE AND UNCALLED FOR. THE PROVISIONS OF SECTION 40A (2) (A) OF THE I T. ACT, 1961 HAVE BEEN MISCONSTRUED AND MISAPPLIED IN THE APPELLANT'S CASE. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) IS NOT JUSTIFIED IN HOLDING THAT UNDER THE FACTS AND CIRCU MSTANCES IS TO BE FAIR 2 AND REASONABLE TO RESTRICT THE RATE OF INTEREST TO 15% AS AGAINST 18% CLAIMED BY THE APPELLANT AND 12% ALLOWED BY THE APP ELLANT. THE DISALLOWANCE OF INTEREST WHICH WORKS OUT TO RS.3,38 ,140 IS UNTENABLE AND CONTRARY TO LAW. THE FACTS OF THE CASE AND MARK ET RATE OF INTEREST HAS BEEN IGNORED TO BE CONSIDERED PROPERLY BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 3. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFI CER DISALLOWED A SUM OF RS. 6,76,279/- ON ACCOUNT OF EX CESS INTEREST PAID TO PARTNERS AND FAMILY MEMBERS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD PAID INTEREST AMOUNTING TO RS. 2,28,836/- TO PARTNERS AN D FAMILY MEMBERS @ 18%. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE STATING THEREIN A S TO WHY INTEREST EXPENDITURE ALLOWED SHOULD NOT BE REST RICTED TO 12% IN VIEW OF THE PROVISIONS OF SECTION 40A(2)( B) OF THE INCOME TAX ACT, 1961 ( IN SHORT 'THE ACT'). IN RES PONSE TO THE SAID NOTICE, THE ASSESSEE CONTENDED THAT THE IN TEREST RATES ON THE LOANS FROM THE BANK WERE AVAILABLE IN THE RANGE OF 12% TO 13% AFTER GIVING COLLATERAL SECURIT Y TO THE BANK. BUT, IN THE CASE OF MARKET LOANS, NO SECURIT Y IS REQUIRED AND NO PAPER OR OTHER FORMALITY IS TO BE COMPLETED. ACCORDINGLY, IT WAS STATED THAT THE RAT E OF 18% PER ANNUM PAID TO UNSECURED LOANS WAS REASONABLE. THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE CONTENTI ONS OF THE ASSESSEE AND DISALLOWED A SUM OF RS. 6,76,279/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, THE LD. CIT(APPEALS) RESTRICTED THE R ATE OF INTEREST TO 15% AS AGAINST 18% CLAIMED BY THE ASSES SEE 3 AND 12% ALLOWED BY THE ASSESSING OFFICER. THUS, TH E LD. CIT(APPEALS) REDUCED THE DISALLOWANCE TO RS. 3,38,1 40/- AS AGAINST RS. 6,76,279/- MADE BY THE ASSESSING OFF ICER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI HARI O M ARORA, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INTEREST PAID @ 18% HAS BEEN ALLOWED BY THE REVENUE IN EARLIER YEARS. HE FURTHER POINTED OUT THAT THE DISALLOWANCE MADE IN ASSESSMENT YEAR 2006-07 BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST HAS BEEN D ELETED BY THE LD. CIT(APPEALS) VIDE HIS ORDER DATED 11.11. 2012 IN APPEAL NO. 605/IT/CIT(A)/ASR/08-09. THE RELEVANT FINDINGS OF THE LD. CIT(APPEALS), AMRITSAR ARE AS U NDER : 5. SHRI J P BHATIA, ADVOCATE, THE ID. COUNSEL FOR THE APPELLANT APPEARED AND ON THE DATE OF HEARING ON 9, 11.2012, FURNISHED WRITTEN SUBMISSIONS OF ACCOUNTS RELYING T HEREUNDER THE CASE LAWS CITED AS RAM AVTAR GARG V. ITO, REPOR TED AT (2010) 4 ITR (JP) 245. THE MAIN THRUST OF THE APPEL LANT IS ON THE FACT THAT WHEREAS PARTNER'S CAPITAL CONTRIBUTED WAS RS.61.75 LAKHS AS AGAINST THE FAMILY DEPOSITS OF RS . 1.02 CRORES WHICH WERE NECESSARY FOR THE BUSINESS EXPEDI ENCY OF THE GIVEN SCALE OF ITS BUSINESS WHICH GOES A LONG W AY IN BOOSTING ITS BUSINESS INCOME TO RS.1750523 THAN LAS T YEAR OF RS. L068077/-. FURTHER, IT HAS-ALL ALONG BEEN THE A PPELLANT'S CONTENTION THAT THE INTEREST @ 18% BEING PAID CONSI STENTLY AS CLAIMED AND ALLOWED IN EARLIER YEARS TOO. AFTER GIV ING FULL DELIBERATIONS AND PONDERING CAREFULLY THE SYSTEM OF APPELLANT'S BUSINESS BEING FOLLOWED CONSISTENTLY AND ALSO APPRECIATING THE PROGRESS IN TAXABLE INCOME TH AN LAST YEAR, I AM OF THE CONSIDERED OPINION THAT THER E SEEMS TO HARM IN CURTAILING THE RATE OF INTEREST @ 12% THAN ACTUALLY PAID AND CLAIMED BY THE APPELLANT @ 18% P.A., FAR FAR BELOW THE PREVALENT MARKET RATE O F 4 INTT. @ 24% P.A. FURTHER, I AGREE WITH THE APPELLAN T'S CONTENTION THE REVENUE OUGHT NOT TO SIT ON THE CHAI R OF THE BUSINESSMAN APPELLANT WHO BETTER KNOWS ITS BUSINESS EXPEDIENCIES/NECESSITIES. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, DISCUSSED SUPRA, I AM OF THE CONSIDERED OPINION THAT WITHOUT PIN-POINTING THE DENIAL AND ANY VARIATION BY THE RECIPIENT OF INTEREST, THE ADDITION OF RS.2,56,743/ -[AS AGAINST ALLEGEDLY CLAIMED AT RS.256743/- IN GROUND OF APPEAL NO. I ON THE FOOTING OF SUBSEQUENT RECTIFICATION ORDER DT.9.1.09] UNDER SECTION 40A(2) (B) IS HEREBY DELETED, BUT NEITHER WARRANTED NOR CALLED FO R IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. 6. SHRI HARI OM ARORA, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ORDER OF THE LD. CIT(APPEALS), AMRITSAR FOR THE ASSESSMENT YEAR 2006-07 PASSED IN ASSESSEE'S OWN CASE HAS NOT BEEN CHALLENGED BY WAY OF APPEAL AND THE REVENUE HAS ACCEPTED THE SAME. SHRI HARI OM ARORA, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT O F ASSESSMENT YEAR 2006-07 AND THEREFORE, THE REVENUE WAS NOT JUSTIFIED IN TAKING A DIFFERENT VIEW IN THIS YE AR. IN THIS YEAR ALSO, THE LOANS WERE TAKEN FROM THE SAME PERSONS/RELATIVES. IT IS TRUE THAT FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 40A(2) OF THE ACT, THE G UIDING FACTOR IS WHETHER THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE, HAVING REGARD TO THE FAIR MARKET VALU E OF THE CASE, SERVICES OR FACILITIES FOR WHICH THE PAYM ENT HAS BEEN MADE. IN OUR OPINION, IT IS A MATTER OF COMMO N 5 KNOWLEDGE THAT THE INTEREST ON UNSECURED LOAN IS NO RMALLY MORE THAN THE INTEREST PAYABLE ON SECURED LOANS. I N THE CASE OF MARKET LOANS, NO SECURITY IS GIVEN AND NO P APER OR OTHER FORMALITIES ARE REQUIRED TO BE COMPLETED. TH E UNSECURED LOAN IS ALSO AVAILABLE AT THE CALL AND CONVENIENCE OF THE ASSESSEE AS AND WHEN REQUIRED. 7. KEEPING IN VIEW THE PECULIAR FACTS AND CIRCUMSTA NCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS. 3,38,140/- SUSTAINED BY THE LD. CIT(APPEALS) IS UNWARRANTED AND HENCE, WE DELETE TH E SAME. ACCORDINGLY, WE ALLOW THE APPEAL OF THE ASSE SSEE. 8. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2016. SD/- SD/- (RANO JAIN) (H. L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED: 19 TH FEBRUARY, 2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD