Bihani Binayake Cotex Pvt.Ltd, Parbhani V. Deputy Commissioner of Income-tax, Circle - Jalna, Jalna

ITA 936/PUN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2530 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 25-02-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 24-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Assessee Lawyers: SHIVRAJ DESHMUKH
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 936 /P U N/201 8 / ASSESSMENT YEAR : 20 12 - 13 BIHANI BINAYAKE COTEX PVT. LTD., OLD MONDHA, SAILU, DIST. PARBHANI . / APPELLANT PAN: A ACCB4793N VS. THE DY. COMMISSIONER OF INCOME TAX, JALNA CIRCLE , JALNA . / RESPONDENT / APPELLANT BY : SHRI SHIVRAJ DESHMUKH / RESPONDENT BY : SHRI M.K. VERMA / DATE OF HEARING : 2 5 . 0 2 .201 9 / DATE OF PRONOUNCEMENT: 11 . 0 3 .201 9 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF CIT (A) - 1 , AURANGABAD , DATED 15 . 0 3 .201 8 RELATING TO ASSESSMENT YEAR 20 12 - 13 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SH ORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) ON THE FACTS AND CIRCUMSTANCES OF CASE THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE MADE U/S 40A (2)(B) BY A. O .@ 3 % ON THE OBTAINED SECURED LOANS. ITA NO. 936 /P U N /201 8 BIHANI BINAYAKE COTEX PVT. LTD. 2 2) ON THE FACTS A ND CIRCUMSTANCES OF THE CASE , T HE HON'BLE COMMISSIONER OF INCOME TAX FAILED TO APPRECIATE THE COMPELLING CIRCUMSTANCES WHICH WARRANTED ENHANCEMENT OF INTEREST RATE FROM 15 % TO 18 % . AS THE LENDERS WERE ASKING FOR ENHANCEMENT OF INTEREST RATE OTHERWISE THEY WERE INSISTING FOR RETURN OF GIVEN LOANS IMMEDIATELY. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A.O. AND HON'BLE COMMISSIONER OF INCOME TAX FAILED TO UNDERSTAND THE NATURE OF BUSINESS IN WHICH IMMEDIATE CASH PAYMENT IS REQUIRED TO BE MADE TO FARMERS. 4) ON THE FACTS AND CIRCUMSTANCES OF CASE A.O. AND HON'BLE COMMISSIONER OF INCOME TAX (A) ERRED IN ASSUMING THAT THE BANKS WERE EAGER TO GIVE LOANS INSTANTLY AT SHORT NOTICE AND THAT TOO WITHOUT ANY SECURITY. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, A.O. ERRED IN DISALLOWING RS.8 , 55,916/ - AS EXCESSIVE INTEREST. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST APPLICATION OF PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE B USINESS OF GINNING & PROCESSING OF COTTON, MANUFACTURE OF AGRICULTURAL PRODUCTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER NOTED THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PAID INTEREST @ 18% ON BORROWINGS MADE FROM THE RELAT IVES, HOWEVER, IN THE PRECEDING YEAR, THE ASSESSEE HAD PAID INTEREST @ 15% ON SUCH BORROWINGS. IN REPLY, THE ASSESSEE EXPLAINED THAT IT HAD AVAILED UNSECURED LOANS FROM ITS SHAREHOLDERS, DIRECTORS AND RELATIVES DURING THE PREVIOUS YEAR. HE FURTHER EXPLAI NED THAT AVERAGE RATE OF INTEREST CHARGED BY THE BANKS WAS 13.5%. HOWEVER, THE LOANS WHICH WERE RAISED BY ASSESSEE WERE UNSECURED IN NATURE AND THE PARTIES DEMANDED INTEREST @ 18% AND HENCE, THE SAME WAS PAID TO THEM. THE ASSESSING OFFICER HOWEVER, RESTR ICTED THE INTEREST RATE TO 15% AS THE SAME RATE OF INTEREST WAS PAID IN ASSESSMENT YEAR 2011 - 12 AND HENCE, MADE AN ADDITION OF 8,55,916/ - . ITA NO. 936 /P U N /201 8 BIHANI BINAYAKE COTEX PVT. LTD. 3 5. THE CIT(A) HAS UPHELD THE SAID ADDITION. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 7. THE LEA RNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT INTEREST WAS PAID AS PER DEMANDS OF UNSECURED LENDERS, WHO DEMANDED THAT INTEREST RATE OF 15% BE PAID. HE FURTHER POINTED OUT THAT THOUGH THE PERSONS WERE SPECIFIED PERSONS UNDER SECTION 40A (2)(B) OF THE ACT , BUT THE PROVISIONS OF SECTION 40A(2) (A) OF THE ACT ARE TO BE ATTRACTED WHERE THE PAYMENT IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE F OR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH IS ARISING IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE OF 8,55,916/ - . THE BASIS FOR DISALLOWAN CE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) WA S THE RATE OF INTEREST PAID BY ASSESSEE ON UNSECURED LOANS RAISED FROM THE RELATIVES, SHAREHOLDERS, ETC. THE CASE OF THE ASSESSING OFFICER WAS THAT IN PRECEDING YEAR, THE ASSESSEE ITSELF WAS P AYING INTEREST @ 15% AND DURING THE YEAR IT HAD PAID INTEREST @ 18%. THE CASE OF ASSESSEE ON THE OTHER HAND, WAS THAT IT HAD RAISED UNSECURED LOANS FROM THE AFORESAID PARTIES WHO WERE RELATED PARTIES BUT SINCE THEY HAD INSISTED UPON , HIGHER RATE OF INTERE ST AND THE AMOUNTS WERE PAID FOR BUSINESS PURPOSE, THE ASSESSEE HAD TO AGREE FOR THE SAID RATE OF INTEREST, THOUGH IT WAS PAYING INTEREST ITA NO. 936 /P U N /201 8 BIHANI BINAYAKE COTEX PVT. LTD. 4 @ 15% IN THE PRECEDING YEAR. DURING THE YEAR UNDER CONSIDERATION, INTEREST WAS PAID TO SUCH UNSECURED LENDERS, WHEREI N THE PARTIES ARE COVERED UNDER SECTION 40A(2)(B) OF THE ACT. 10. SECTION 40A(2)( A ) OF THE ACT LAYS DOWN THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) AND WHERE THE ASSE SSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE, THEN SUCH EXCESSIVE OR UNREASONABLE EXPENDITURE SHALL NOT BE ALLOWED AS DEDUCTION. HENCE, IT IS INCUMBENT UPON THE ASSESSING OFFICER TO COME TO FINDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF SUCH GOODS, SERVICES OR FACILITIES. THE ONUS IS UPON THE ASSESSING OFFICER TO FULFILL THE AFORESAID CONDITIONS LAID DOWN IN THE SAID SECTION, WHICH HAS NOT BEEN FULFILLED BY THE ASSESSING OFFICER. MERELY BECAUSE THE ASSESSEE WAS PAYING INTEREST @ 15% IN THE PRECEDING YEAR CANNOT BE THE BASIS FOR DISALLOWING RATE OF INTEREST OF 18% PAID IN THE INSTANT ASSESSMENT YEAR . B ECAUSE OF THE MARKET CONDITIONS AND NON AVAILABILITY OF SECURED LOANS, WHICH IN ANY CASE WERE AVAILABLE @ 13.5% , T HE ASSESSEE HAD ACCEPTED THE DEMAND S OF CREDITORS AND PAID INTEREST @ 18% . IN THE ABSENCE OF ASSESSING OFFICER FULFILLING THE CONDITIONS OF SECTION 40A(2)( A ) OF THE ACT, THERE IS NO MERIT IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE HANDS OF ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAD PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF PUNJAB & H ARYANA IN RAMESH CHAND (HUF) VS. CIT (2013) 35 TAXMANN.COM 63 (P&H), WHEREIN THE ASSESSING OFFICER HAD COME TO FINDING THAT RATE OF INTEREST PAID TO MOTHER ON OLD LOAN WAS HIGHER THAN THE MARKET RATE OF INTEREST ITA NO. 936 /P U N /201 8 BIHANI BINAYAKE COTEX PVT. LTD. 5 AND SINCE THE TRANSACTI ON IN QUESTION WAS HELD TO BE NON GENUINE AND NOT BONAFIDE TRANSACTION, THE DISALLOWANCE OF HIGHER RATE OF INTEREST WAS MADE IN THE HANDS OF SAID ASSESSEE UNDER SECTION 40A(2)(B) OF THE ACT. THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF PUNJAB & HARYAN A WITH DUE RESPECT, IS NOT APPLICABLE TO THE FACTS OF PRESENT CASE, SINCE THE FACTS OF THE CASE BEFORE US ARE AT VARIANCE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF 8,55,916/ - . THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE THUS, ALLOWED. 11 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 11 TH DAY OF MARCH , 201 9 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 11 TH MARCH , 201 9 . GCVSR / C OPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 1 , AURANGABAD ; 4. THE PR. CIT - 1 , AURANGABAD ; 5. 6. , , , - / DR SM C , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE