M/s Ganpati Jewellers, Chandigarh V. ITO, Chandigarh

ITA 994/CHANDI/2011

• Counselvise Citation: 99421514 RSA 2011
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER ITA NO. 994/CHD/2011 ASSESSMENT YEAR: 2007-08 SHRI GANPATI JEWELLERS, VS THE ITO, MANIMAJRA WARD 3(4), CHANDIGARH PAN NO. AACFG9627M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JASPAL SHARMA RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 10.01.2012 DATE OF PRONOUNCEMENT : 10.01.2012 . ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), CHANDIGARH DATED 6.7.2011 RELATING TO ASSES SMENT YEAR 2007-08. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN HAVING CONFIRMED THE ADDITION O F RS. 5,66,516/- MADE BY THE LD. ASSESSING OFFICER BY RESTRICTING THE INTEREST PAID / PAYABLE TO THE RELA TIVES ON UNSECURED LOANS AT 12% AS AGAINST 15% CLAIMED BY TH E 2 ASSESSEE, BY RESORTING TO THE PROVISIONS OF SECTION 40A(2) OF THE INCOME TAX ACT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN TRADING OF GOLD AND DIAMOND JEWELLERY. THE ASSESSI NG OFFICER OBSERVED THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS CL AIMED INTEREST OF RS. 28,32,580/- PAID ON UNSECURED LOANS. LOANS WERE RA ISED MOSTLY FROM THE RELATIVES. THE ASSESSEE HAS PAID INTEREST @ 15% ON ALL THE UNSECURED LOANS. THE ASSESSING OFFICER VIDE HIS LETTER DATED 23.10.2 009 REQUIRED THE ASSESSEE TO JUSTIFY THE CLAIM OF INTEREST PAID @ 15% WHEN BA NK RATE WAS 10 TO 12%. IN RESPONSE, ASSESSEE THROUGH ITS COUNSEL FURNISHED RE PLY ON 14.12.2009 STATING THEREIN THAT BANK CHARGED RATE WAS 13% TO 14.25%. HE FURNISHED PROOF OF RATE OF INTEREST CHARGED @ 13% ON C.C. LIMIT IN THE CASE OF M/S SIDHHARTH EXPORTS. THE ASSESSEE ALSO SUBMITTED BEFORE THE ASS ESSING OFFICER THAT ITS BUSINESS FALLS IN NON PRIORITY SECTOR AS PER THE NO RMS OF THE BANKS AND THE RATE OF INTEREST CHARGED EVEN BY THE BANKS IS MUCH HIGHE R THAN THE NORMAL BANKING CREDIT RATE. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ALLOWED INTEREST @ 12% OF THESE LOANS AND DISALLOWED EXCESS INTEREST. CONSEQUENTLY, THE ADDITION OF RS. 5,66,5 16/- WAS MADE U/S 40A(2) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND IT WAS S UBMITTED BEFORE THE CIT(A) THAT THE CURRENT MARKET RATE OF LENDING BY T HE BANK WAS 13% TO 14.25% TO THE BUSINESS CARRIED ON BY THE ASSESSEE A ND EVIDENCE BY WAY OF STATEMENT OF CASH CREDIT LIMIT TAKEN BY ONE OF THE JEWELLERS WAS ALSO SUBMITTED. THE ASSESSEE ALSO CONTENDED BEFORE THE CIT(A) THAT FOR JUDGING 3 THE UNREASONABLENESS OR EXCESSIVENESS OF A PARTICUL AR PAYMENT FOR PURPOSES OF SECTION 40A(2)(A), IT IS ESSENTIAL TO CONSIDER THE PREVAILING MARKET RATE AND ALSO THE OTHER RELEVANT CONSIDERATIONS ATTACHED TO IT. THE NEEDS OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING FROM SUCH EXPENSES HAVE NOT TO BE JUDGED FROM THE VIEW POINT OF THE REVENUE OFFICE R BUT FROM THE VIEW POINT OF THE BUSINESSMEN WHO INCURS SUCH EXPENDITURE. IT WAS ALSO CONTENDED BEFORE THE CIT(A) THAT THE BANK LOANS WERE AVAILABL E TO THE ASSESSEE ONLY ON FULFILLMENT OF CERTAIN CRITERIA AS REGARDS TO THE C REDIBILITY OF THE PARTNERS OF THE ASSESSEE FIRM AS WELL AS THE GOODWILL OF THE FI RM APART FROM PRIMARY AND COLLATERAL SECURITY BEING OFFERED AGAINST SUCH LOAN . IT WAS ALSO SUBMITTED BEFORE THE CIT(A) THAT BANK LOAN CAN ONLY BE AVAILE D BY MORTGAGING THE PRIMARY SECURITY I.E. STOCKS AND ALSO OFFERING COLL ATERAL SECURITY AS EQUITABLE MORTGAGE OF IMMOVABLE PROPERTY. ON THE OTHER HAND, UNSECURED LOANS ARE SECURED ONLY BY THE MORAL RESPONSIBILITY OF THE PAR TNERS OF THE FIRM TO WHOM THE LOANS ARE GIVEN AND ARE NOT AT ALL SECURED BY A NY ASSETS. 5. THE CIT(A) REJECTED THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASONS STATED IN PARAS 2.3, 2.3.1 AND 2.3.2 OF TH E IMPUGNED ORDER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI JASPA L SHARMA, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BE FORE THE LOWER AUTHORITIES. HE FURTHER SUBMITTED THAT THE LOANS TAKEN FROM THE RELATIVES WERE COMPLETELY UNSECURED AND, THEREFORE, HIGHER RATE OF INTEREST W AS PAID TO THEM. HE PRAYED THAT THE IMPUGNED DISALLOWANCE SHOULD BE DEL ETED. WE FIND SUBSTANTIAL FORCE IN THE ABOVE CONTENTION OF THE SH RI JASPAL SHARMA, LD. 4 COUNSEL FOR THE ASSESSEE. THE ASSESSEE CLAIMED THA T HIGHER RATE OF INTEREST WAS PAID TO THE RELATIVES AS THE LOANS TAKEN FROM T HEM WERE UNSECURED. KEEPING IN VIEW THE SMALLNESS OF THE AMOUNT, THE SU BMISSIONS MADE BY THE ASSESSEE AND THE SCALE OF THE BUSINESS OF THE ASSES SEE, WE THINK IT APPROPRIATE TO DELETE THE IMPUGNED DISALLOWANCE. CONSEQUENTLY, WE DELETE THE ADDITION OF RS. 5,66,516/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) BY RESORTING TO THE PROVISIONS OF SECTION 40A(2) OF THE ACT. 7. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JANUARY, 2012. SD/- SD/- (D.K.SRIVASTAVA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 10 TH JANUARY, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR