The DCIT, Central Circle-1, Baroda V. M/s. Mangalya Ceramics, Nadiad

ITSSA 185/AHD/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3744 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 14-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation
• Section: 143(3); 153A

Judgement Text

- , - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ IT(SS)A NO.185/AHD/2015 / ASSTT. YEAR: 2008-09 DCIT, CENT.CIR.1 BARODA. VS. M/S.MANGALYA CERAMICS STATION ROAD VILLAGE-KANJARI NADIAD 387 001. PAN : AANFM 7555 K / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI MUDIT NAGPAL, SR.DR ASSESSEE BY : SHRI MUKUND BAKSHI, AR ! ' / DATE OF HEARING : 06/03/2018 #$% ! ' / DATE OF PRONOUNCEMENT: 14 /05/2018 &' / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF LD.CIT(A)-12, AHMEDABAD DATED 26.3.2015 PASSED FOR THE ASSTT.YEAR 2008-09. 2. IN THE FIRST GROUND OF APPEAL, THE REVENUE IS AG GRIEVED BY ACTION OF THE LD.CIT(A) IN ALLOWING CLAIM OF THE AS SESSEE IN RESPECT OF INTEREST PAYMENT MADE TO THE PERSONS COVERED UND ER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961. IT(SS)A NO.185/AHD/2015 2 3. BRIEF FACTS OF THE CASE ARE THAT IN THE ASSESSMEN T PROCEEDINGS UNDER SECTION 143(3) R.W.S. 153A OF THE INCOME TAX ACT, 1961, THE AO OBSERVED THAT THE ASSESSEE HAS BO RROWED UNSECURED LOANS/DEPOSITS FROM PARTNERS/RELATIVES, W HO ARE COVERED UNDER SECTION 40A(2)(B) OF THE ACT AND PAID INTEREST AT HIGHER RATE OF 18% PER ANNUM. ACCORDINGLY, THE AO SHOW CAUSED THE ASSESSEE AS TO WHY RATE OF INTEREST TO THE DEPO SITS BE NOT RESTRICTED TO 12%. THE ASSESSEE SUBMITTED THAT RAT E OF INTEREST TO BE PAID TO DEPOSITS DEPENDS UPON MANY FACTORS; SUCH AS BUSINESS EXPEDIENCY OF THE BUSINESS, COMPLIANCE OF VARIOUS D OCUMENTARY FORMALITIES ETC. IT WAS FURTHER SUBMITTED THAT BOR ROWINGS FROM RELATED PARTIES REQUIRED LESS CUMBERSOME AND LESS C OSTLY VIS--VIS VARIOUS PROCEDURAL REQUIREMENT OF BANKS AND OTHER F INANCIAL INSTITUTIONS. THEREFORE, EVEN IF THE ASSESSEE PAI D LITTLE HIGHER RATE OF INTEREST TO THE PARTNERS/RELATIVES FOR THEIR LOA NS ADVANCED, THEN IT WILL BE MORE BENEFICIAL FOR THE ASSESSEE TO AVAI L SUCH LOANS, AND THEREFORE, RATE OF INTEREST AT 18% CANNOT BE TERMED AS EXCESSIVE AND UNREASONABLE. THE LD.AO, HOWEVER, DID NOT BUY THIS EXPLANATION OF THE ASSESSEE, HE INVOKED PROVISIONS OF SECTION 40A(2)(B) AND RESTRICTED THE RATE OF INTEREST AT 12 % PER ANNUM. HOWEVER, THE LD.CIT(A) APPRECIATED THE FACTS OF ASS ESSEES CASE AND ALLOWED THE CLAIM OF INTEREST AT THE RATE OF 18 % BY FOLLOWING ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. NAVJI VAN ROLLER FLOUR & PULSE MILLS P.LTD. IN ITA NO.2695/AHD/2009. 4. AGGRIEVED BY THIS ACTION OF THE LD.CIT(A), REVEN UE IS BEFORE US. 5. BEFORE US, THE LD.DR SUPPORTED THE ORDER OF THE L D.AO, WHILE, THE LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE ORD ER OF THE IT(SS)A NO.185/AHD/2015 3 LD.CIT(A) AND CONTENDED THAT THE LD.AO HAS NOT BROU GHT ANY MATERIAL TO PROVE THAT INTEREST PAID BY THE ASSESSE E IS EXCESSIVE OR UNREASONABLE. THE LD.AO HAS NOT DISPUTED THE FACTU M OF AVAILMENT OF DEPOSITS/ADVANCES FROM THE PARTNERS/RE LATIVES FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY. SECTION 40A(2)(B) CONTEMPLATES THAT IF AN ASSESSEE INCURS EXPENDITURE FOR AVAILING THE SERVIC ES OF PERSONS WHO ARE CLOSELY ASSOCIATED WITH THE ASSESSEE-COMPAN Y OR THE MANAGEMENT, AND MADE PAYMENT TO SUCH PERSONS IN EXC ESS TO THE MARKET RATE, THEN, THAT EXTRA PAYMENT WILL NOT BE A LLOWED TO THE ASSESSEE AS DEDUCTION. IN OTHER WORDS, IF SERVICE IS BEING AVAILED BY AN ASSESSEE FROM THE PERSON FALLING UNDER SECTIO N 40A(2)(B), AND THE SIMILAR SERVICE WAS AVAILED FROM OPEN MARKE T ON A LESSER RATE, THEN, THE DIFFERENCE BETWEEN THOSE RATES COUL D NOT BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IN THE PRESE NT CASE, THE ASSESSEE HAS AVAILED LOAN FROM THE PERSONS STATED T O BE COVERED UNDER SECTION 40A(2)(B) AND PAID INTEREST AT THE RA TE OF 18%. THIS, ACCORDING TO THE AO IS EXCESSIVE AND UNREASON ABLE AS COMPARED TO BE PREVAILING LENDING RATE. WE ARE OF THE VIEW THAT THIS OBSERVATION IS FAR FROM REALITY AND WITHOUT BA SIS, CONSIDERING THE FACT THAT THE LOAN TAKEN BY THE ASSESSEE IS UNS ECURED AND WITHOUT ANY COLLATERAL SECURITIES AND FORMAL DOCUME NTATIONS. IT IS FREE FROM ROUTINE CUMBERSOME FORMALITIES AS COMPARE D TO THE PROCEDURAL FORMALITIES BY VARIOUS BANKS AND FINANCI AL INSTITUTIONS. IN NORMAL WAY, RATE OF INTEREST IS BEING DECIDED BY MUTUAL AGREEMENT CONSIDERING BUSINESS EXPEDIENCY. SUCH FA CTOR IS TO BE DECIDED FROM THE BUSINESSMENS POINT OF VIEW AND NO T BY THE AO. THE INCOME-TAX AUTHORITIES MUST NOT PUT THEMSELVES IN THE SHOES OF IT(SS)A NO.185/AHD/2015 4 THE ASSESSEE AND SEE AT WHAT RATE A PRUDENT BUSINES S MAN SHOULD BORROW MONEY FROM THE DEPOSITORS FOR HIS BUSINESS N ECESSITY. THEREFORE, WE FIND THAT THE LD.CIT(A) HAS APPRECIAT ED THE FACTS OF THE CASE AND RIGHTLY DELETED DISALLOWANCE OF INTEREST. THE FINDING OF THE LD.CIT(A) DOES NOT REQUIRE OUR INTERFERENCE, AND HE NCE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE NEXT GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD.CIT(A) HAS ERRED IN ALLOWING ADDITIONAL DEPRECAT ION AT THE RAGE OF 10% IN VIEW AMENDMENT MADE IN SECTION 32(1)(IIA) OF THE ACT. 8. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION AT THE RATE OF 10% ON WIND MILL. THE ASSESSEE EXPLAINED THAT 10% ADDITIO NAL DEPRECIATION ON WIND MILL INSTALLED ON29.3.2008 WAS IN ACCORDANC E WITH PROVISIONS CONTAINED IN SECTION 32(1)(IIA) OF THE ACT, WHICH S TIPULATES THAT ADDITIONAL DEPRECIATION IS ELIGIBLE TO VERY ASSESSE E WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURING ARTICLE OR THING AND SUCH PRODUCTS ARE SUBJECT TO EXCISE DUTY. THE LD.AO, HOWEVER, DID NO T AGREE WITH THE CONTENTIONS OF THE ASSESSEE, AND DISALLOWED CLAIM O F ADDITIONAL DEPRECIATION. IN APPELLATE PROCEEDINGS BEFORE THE LD.FIRST APPELLATE AUTHORITY, THE LD.CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL IN THE CASE OF P OWER BUILD PVT. LTD. IN ITA NO.1945/AHD/2010 DATED 31.8.2012. AGGRIEVE D, TRIBUNAL IS NOW BEFORE US. 9. BOTH THE PARTIES RELIED UPON AND SUPPORTED THE O RDERS OF RESPECTIVE AUTHORITIES BELOW. LD.COUNSEL FOR THE A SSESSEE FURTHER RELIED UPON THE ORDERS OF JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT VS. GUJARAT STATE FERTILIZERS CO. LTD., 80 T AXMANN.COM 40 IT(SS)A NO.185/AHD/2015 5 (GUJ) AND CERA SANITARYWARE LTD. VS. DCIT, 68 TAXMA NN.COM 433 (AHD.TRIB) TO SUPPORT ITS CASE. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE RECORD. WE FIND THAT THE ASSESSEE HAS CLAIMED ADDI TIONAL DEPRECIATION AT THE RATE OF 10% ON THE WIND MILL IN STALLED ON 29.3.2008 AS THE PROVISIONS OF SECTION 32(1)(IIA) O F THE ACT WHICH PROVIDES THAT EVERY ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING S HALL BE ELIGIBLE FOR ADDITIONAL DEPRECIATION. THE ISSUE OF ALLOWABI LITY OF ADDITIONAL DEPRECIATION AS PER THIS PROVISION HAS BEEN SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. DIA MINES & CHEMICALS LTD. [2014] 42 TAXMANN.COM 193 (GUJ.). T HIS JUDGMENT WAS FOLLOWED BY THE CIT(A) WHILE ALLOWING THE CLAIM OF THE ASSESSEE, AND THEREFORE, ALLOWANCE OF ADDITIONA L DEPRECIATION IS IN ACCORDANCE WITH JUDICIAL PRECEDENT. THEREFOR E, OUR INTERFERENCE IS NOT REQUIRED ON THIS ISSUE ALSO. O RDER OF THE LD.CIT(A) IS UPHELD ON THIS ISSUE AND GROUND OF APP EAL OF THE REVENUE IS DISMISSED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON 14 TH MAY, 2018. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 14 /05/2018