M/s. Laxmi Pulse Rice and Roller Flour Mills, Dahod V. The ACIT.,Cent.Circle-1, Baroda

ITSSA 50/AHD/2010

• Counselvise Citation: [2012] 121 COUNSELVISE.COM (IT) 8304 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-08-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 18-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: TALATI
• Keywords: Fair market value
• Section: 143(3); 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI A.MOHAN ALANKAMONY, AM AND SHRI KUL BH ARAT, JM) IT(SS)A NO.50, 51 AND 52/AHD/2010 A.Y.: 2001-02, 2002-03 AND 2003-04 M/S. LAXMI PULSE RICE & ROLLER FLOUR MILLS, CHAKALIA ROAD, DAHOD (GUJARAT) P. A. NO. AAAFL 8768 N VS THE A. C. I. T., CENT. CIR-1, BARODA (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. H. TALATI, AR RESPONDENT BY SHRI S. K. GUPTA, SR. DR DATE OF HEARING: 01-08-2012 DATE OF PRONOUNCEMENT:03-08-2012 O R D E R PER A. MOHAN ALANKAMONY: THESE APPEALS ARE FILED BY THE ASSESSEE AGGRIEVED BY DIFFERENT ORDERS OF THE L EARNED CIT(A) IN APPEAL NO. CIT(A)-IV/159-B/CC-1/08 FOR AY 2001-02, CIT(A)-IV/160- B/CC-1/08-09 FOR AY 2002-03 AND CIT(A)-IV/161-B/CC -1/08-09 FOR AY 2003-04 ALL DATED 20-10-2009 PASSED U/S 153A REA D WITH SECTION 143(3) OF THE IT ACT. ALL THESE APPEALS WERE HEARD TOGETHER, THE FACTS AND ISSUE BEING SAME IN ALL THE ASSESSMENT YEARS EX CEPT DIFFERENCE IN THE FIGURES FOR ADDITION, THESE APPEALS SAME ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUNDS NO.2 AND 3 RAISED BY THE ASSESSEE IN ALL THE APPEALS ARE GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. THE LONE COMMON GROUND NO.1 OF THE APPEALS SURVIVING FOR ADJUDICATI ON READS AS UNDER: IT (SS) A NO.50, 51 AND 52/A/2010 (AY: 2001-02 TO 2 003-04) LAXMI PULSE RICE & ROLLER MILLS, VS ACIT, CC-1, BAR ODA 2 THE LEARNED C. I. T. (APPEALS) HAS ERRED IN CONFIR MING THE DISALLOWANCE U/S. 40A (2) (B) OF THE INCOME TAX ACT OF RS.52,788/- IN AY 2001-02, RS.77,470/- IN AY 2002-0 3 AND RS.81,476/- IN AY 2003-04 ON THE GROUND THAT INTERE ST PAID TO THE DEPOSITORS AT 18% ARE EXCESSIVE AND UNREASONABL E COMPARED TO THE MARKET RATE. THE LEARNED C.I. T. (A PPEALS) HAS ERRONEOUSLY AND INCORRECTLY HELD THAT INTEREST AT 1 5% P.A. IS THE FAIR MARKET RATE AND NOT THE CORRECT MARKET RATE OF 18% PAID BY THE ASSESSEE FIRM. IT IS SUBMITTED THAT THE INTERES T PAID AT 18% TO ALL DEPOSITORS, WHO ARE RELATIVE HAVE BEEN PAID INTEREST AT THE CORRECT AND APPROPRIATE MARKET RATE. THE LEARNED C. I. T. (APPEALS) ARBITRARILY DECIDED THE MARKET RATE AT 15 %. IT IS SUBMITTED THAT THE CONSEQUENTIAL DISALLOWANCE OF 3% P. A. WORKED OUT TO RS.52,788/- (IN AY 2001-02), RS.77,47 0/- ( IN AY 2002-03) AND RS.81,476/-( IN AY 2003-04) IS ABSOLUT ELY INCORRECT, ILLEGAL AND THE SAME BE DELETED. 3. THE ISSUE AND THE FACTS BEING COMMON IN ALL THE ASSESSMENT YEARS, WE WOULD FIRST TAKE UP ASSESSEES APPEAL IN IT(SS)A NO.50/AHD/2010 FOR AY 2001-02. THE ASSESSEE IS ENG AGED IN PULSE, RICE & ROLLER FLOUR MILLING BUSINESS. A SEARCH WAS CARRIED OUT IN THE CASE OF M/S. LAXMI GROUP AT DAHOD AND IN THE CASE O F THE ASSESSEE U/S 132 OF THE ACT ON 19-09-2006 SUBSEQUENT TO WHIC H PROCEEDINGS U/S 153A OF THE ACT WERE INITIATED BY ISSUING NOTIC E U/S 153(3) OF THE ACT ON 12-03-2007. THE ASSESSEE IN COMPLIANCE THERE TO FILED ITS RETURN OF INCOME FOR AY 2001-02 ON 26-4-2007 DECLAR ING TOTAL INCOME AT RS.9,75,510/- WHICH WAS THE SAME AS RETURNED IN THE ORIGINAL RETURN FILED U/S 139(1) OF THE ACT. THE LEARNED AO NOTED T HAT THE ORIGINAL RETURN FILED U/S 139(1) OF THE ACT WAS ACCOMPANIED WITH AUDITORS REPORT IN FORM NO.3CD WHEREIN IT WAS SPECIFIED THAT THE ASSESSEE HAD PAID A SUM OF RS.5,25,734/- TO THE PERSONS COVERED U/S 40A (2) (B) OF THE ACT UNDER THE HEAD PAYMENT OF INTEREST AND SALA RY. DURING THE IT (SS) A NO.50, 51 AND 52/A/2010 (AY: 2001-02 TO 2 003-04) LAXMI PULSE RICE & ROLLER MILLS, VS ACIT, CC-1, BAR ODA 3 COURSE OF THE ASSESSMENT PROCEEDINGS THE LEARNED AO REQUIRED THE ASSESSEE TO FURNISH DETAILS OF THE INTEREST PAYMENT S TO PERSONS REFERRED TO U/S 40A (2) (A) OF THE ACT. THE ASSESS EE SUBMITTED THE DETAILS OF SUCH PAYMENTS FOR 12 PERSONS STATING THA T THE SAME ARE AT COMPARATIVE PREVAILING MARKET RATE, HOWEVER, COULD NOT SUBSTANTIATE THE SAME WITH ANY COGENT MATERIALS. THE LEARNED AO NOTED THAT THE RATE OF INTEREST IN THE FINANCIAL MARKET AT THE REL EVANT TIME WAS 12% AND DISALLOWED A SUM OF RS.1,05,576/- U/S 40A (2) ( A) OF THE ACT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARN ED CIT(A) WHO AFTER CONSIDERING THE FACTS, OBSERVATIONS OF THE LE ARNED AO AND SUBMISSIONS OF THE ASSESSEE RESTRICTED THE DISALLO WANCE OF INTEREST TO RS.52,788/- BY OBSERVING IN PARA 2.3 OF HIS ORD ER AS UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LEARNED COUNSEL AND ALSO GONE THROUGH THE FINDING RECORDED BY THE ASSESSING OFFICER ON THIS ISSUE. THE DISALLOWANCE U /S 40A (2) (A) CAN BE MADE ONLY IF, IT IS EXCESSIVE OR UNREASO NABLE IN THE OPINION OF THE ASSESSING OFFICER HAVING REGARD TO T HE FAIR MARKET VALUE. THEREFORE, FIRST OF ALL, THE FAIR MARKET VAL UE IS TO BE ASCERTAINED AND IF, THE PAYMENT OF INTEREST IS MORE THAN THE FAIR MARKET VALUE, THEN THE EXCESS CAN BE DISALLOWED. TH E ASSESSING OFFICER HAS CONSIDERED THE FAIR MARKET RA TE OF INTEREST AT 12% WITHOUT ANY BASIS. THE ASSESSING OFFICER WAS REQUIRED TO FIRST ASCERTAIN THE PREVAILING MARKET RATE OF IN TEREST ON SOME LOGICAL BASIS AND THEN HE WAS REQUIRED TO DISALLOW THE EXCESS INTEREST. HE HAS HELD WITHOUT ANY REASON THAT THE I NTEREST RATE IN FINANCIAL MARKET, I. E .BANK ETC. LIES LESS THAN OR EQUAL TO 12% DURING THE YEAR. I HAVE SEEN IN THE CASE OF M/S. NU TAN PULSE MILLS, DAHOD, ASSESSED BY THE SAME ASSESSING OFFICE R, WHERE THE RATE OF INTEREST OF COOPERATIVE BANK WAS RANGIN G FROM 12 TO 15%. THE LEARNED COUNSEL FURNISHED A LONG LIST OF D EPOSITORS IT (SS) A NO.50, 51 AND 52/A/2010 (AY: 2001-02 TO 2 003-04) LAXMI PULSE RICE & ROLLER MILLS, VS ACIT, CC-1, BAR ODA 4 WHERE THE APPELLANT IS PAYING INTEREST TO OUTSIDERS AT THE RATE RANGING FROM 12% TO 15%. EVEN, IN FEW OF THE CASES, THE RATE IS MUCH HIGHER AND GOES TO 18% TO21%. THUS, THE INTERE ST RATE IS CONSIDERED BY THE ASSESSING OFFICER CANNOT BE SAID TO BE THE FAIR MARKET RATE OF INTEREST. THE FAIR MARKET RATE OF INTEREST WILL BE THE RATE OF INTEREST ON WHICH THE FUNDS CAN BE A RRANGED IN THE MARKET. AS PER THE VERSION OF SHROFFS, THOUGH C ANNOT BE ACCEPTED AS AUTHENTIC, THE RATE OF INTEREST IN THE MARKET IN DAHOD AREA IS RANGING FROM 12% TO 18%. IN THE CASE OF M/S. NUTAN PULSE MILLS, A CONCERN DEALS IN PULSES AT DAH OD LIKE THE APPELLANT, I HAVE HELD THE FAIR MARKET RATE OF 15% AS REASONABLE. THE APPELLANT CANNOT DERIVE SUPPORT FRO M THE CASE LAWS RELIED UPON BECAUSE THOSE ARE RELATING TO ASSE SSMENT YEARS OF NINETIES WHEN THE RATE OF INTEREST EVEN OF BANKS WAS VERY HIGH. HOWEVER, HONBLE AMRITSAR BENCH OF THE T RIBUNAL IN THE CASE OF SUBHASH CHANDRA & CO. VS. ITO 121 TTJ ( ASR.) 718 FOR AY 2006-07 HAS HELD THE INTEREST RATE OF 15% AS REASONABLE. THE LEARNED COUNSEL HAS ALSO RELIED UPON THIS DECIS ION. CONSIDERING THE ABOVE DISCUSSION AND TAKING INTO CO NSIDERATION THE OVERALL VIEW OF THE FACTS DISCUSSED ABOVE, THE RATE OF INTEREST OF 15% PER ANNUM IS CONSIDERED TO BE THE F AIR MARKET RATE OF INTEREST FOR THE A. Y. 2001-02 TO THE A. Y. 2007-08. THE PAYMENT OF INTEREST OVER AND ABOVE THE RATE OF 15% PER ANNUM IS THUS CONSIDERED AS DISALLOWABLE. THE APPELLANT H AS PAID THE INTEREST @18%, THEREFORE INTEREST @3% PER ANNUM IS DISALLOWABLE, WHICH IS WORKED OUT TO RS.52,788/-. T HE DISALLOWANCE OF INTEREST IS THUS RESTRICTED TO RS.5 2,788/- AND THE REST OF THE DISALLOWANCE IS DELETED. THE FIRST GROU ND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. BEING AGGRIEVED BY THIS ORDER OF THE LEARNED CIT(A) , THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED AR AT THE TIME OF HEARING BEFORE US SUBMITTED A PAPER BOOK CONTAINING PAGES 1 TO 12 AND REFERRED TO THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF (I) AIA MEGATTE AUX LTD. VS DCIT IN ITA NO.5377/AHD/1996 FOR AY 1993-94 DATED 0 9-09-2002, (II) IT (SS) A NO.50, 51 AND 52/A/2010 (AY: 2001-02 TO 2 003-04) LAXMI PULSE RICE & ROLLER MILLS, VS ACIT, CC-1, BAR ODA 5 M/S. KRISHNA TERENE PVT. LTD. VS ACIT IN ITA NO.775 /AHD/2010 FOR AY 2005-06 DATED 30-03-2012 AND THE DECISION OF ITA T AMRITSAR BENCH IN THE CASE OF ITO BS CHAMBA MAL ROOP CHAND I N ITA NO.753/ASR/1992 FOR AY 1991-92 DATED 31-08-2000 AND SUBMITTED THAT THE CASE OF THE ASSESSEE IS COVERED BY THE REC ENT DECISION OF ITAT AHMEDABAD A BENCH IN THE CASE OF KRISHNA TER ENE PVT. LTD. SUPRA AND PRAYED THAT THE DISALLOWANCE CONFIRMED BY THE LEARNED CIT(A) MAY BE DELETED. ON THE OTHER HAND, THE LEAR NED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND PRAYE D THAT HIS ORDER MAY BE UPHELD. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY P ERUSED THE ORDERS OF THE REVENUE AND GONE THROUGH THE PAPER BO OK SUBMITTED BY THE LEARNED AR ALONG WITH THE CERTIFICATE OF FINANC IAL BROKER, FAKHARI JABIRBHAI JAMBUGHODAWALA OF DAHOD DATED 14-09-2009 WHEREIN PREVAILING MARKET RATE OF INTEREST ON DEPOSITS DURI NG F. Y. 2000-01 TO 2004-05 HAS BEEN CONFIRMED TO BE 12% TO 18 AND DURI NG F. Y. 2005- 06 AND 2006-07 THE SAME HAS BEEN CONFIRMED TO BE 12 % TO 15%. WE ALSO FIND THAT ITAT AHMEDABAD A BENCH IN THE C ASE OF M/S. KRISHNA TERENE PVT. LTD. IN ITA NO.775/AHD/2010 DAT ED 30-03-2012 WHEREIN THE SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE RELEVANT PORTION OF THE FI NDINGS OF THE TRIBUNAL IN THE ABOVE CASE IS REPRODUCED HEREIN BEL OW: 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE AO AND THE LEARNED CIT(A) AND ALS O THE ORDERS OF THE AO AND THE LEARNED CIT(A) IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-05. WE FIND THAT IN SIMILAR FACTS THE ADDITION MADE U/S 40A(2)(B) OF THE ACT ON ACCOUNT OF IT (SS) A NO.50, 51 AND 52/A/2010 (AY: 2001-02 TO 2 003-04) LAXMI PULSE RICE & ROLLER MILLS, VS ACIT, CC-1, BAR ODA 6 EXCESSIVE INTEREST IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-05 WAS DELETED BY THE LEARNED CIT(A) IN T HE CASE OF THE ASSESSEE VIDE HIS ORDER DATED 29-01-2008. IT WAS STATED BY THE ASSESSEE THAT NO FURTHER APPEAL WAS PREFERRED BY THE REVENUE AGAINST THE SAID ORDER OF THE LEARNED CIT(A ). EVEN ON MERITS, WE FIND THAT THE ISSUE HAS TO BE DECIDED I N FAVOUR OF THE ASSESSEE SINCE THE DISALLOWANCE WAS MADE ONLY FOR T HE REASON THAT THE INTEREST WAS PAID TO THE DEPOSITORS AT THE RATE OF 18% WHEREAS IT WAS PAID TO THE BANK AT 13.5% PER ANNUM. THE INTEREST RATE OF 18% COULD NOT BE SAID TO BE EXCESS IVE IN THE FACTS OF THE CASE. WE FIND THAT THE LEARNED CIT(A) IN HIS APPELLATE ORDER FOR THE PRECEDING ASSESSMENT YEAR 2 004-05 HAS RECORDED THAT OTHER PERSONS WHO ARE NOT COVERED BY SECTION 40A(2)(B) OF THE ACT WERE ALSO PAID INTEREST AT THE RATE OF 18%. THERE ARE OTHER FACTORS ALSO JUSTIFYING HIGHER RATE OF INTEREST PAID TO THE CREDITORS AS COMPARED TO THE RATE OF IN TEREST PAID TO THE BANK, SUCH AS NO NEED OF OFFERING SECURITY OR P LEDGING THE MOVABLE OR IMMOVABLE ASSET, THE PERIOD FOR WHICH TH E LOAN WAS REQUIRED AND THE PURPOSE OF THE LOAN, ETC. THERE IS NO MATERIAL BROUGHT ON RECORD ON BEHALF OF THE REVENUE TO SUGGE ST THAT THE ASSESSEE HAS PAID A LOWER RATE OF INTEREST TO OUTSI DE PARTIES AS COMPARED TO THE DEPOSITORS COVERED U/S 40A(2)(B) OF THE ACT. IN THESE FACTS OF THE CASE, WE HOLD THAT THE ADDITION / DISALLOWANCE MADE U/S 40A (2)(B) ON ACCOUNT OF EXCESSIVE INTERES T IS NOT JUSTIFIED AND IS DELETED ACCORDINGLY AND THE GROUND OF APPEAL NO.1 IS ALLOWED. 5.1 IN VIEW OF THE ABOVE DISCUSSIONS, KEEPING CONSI STENCY WITH THE DECISION TAKEN IN SIMILAR FACTS AND CIRCUMSTANCES B Y OUR CO-ORDINATE BENCH, WE HEREBY ALLOW THE APPEAL OF THE ASSESSEE I N IT(SS)A NO.50/AHD/2010 FOR AY 2001-02. 5.2 SINCE, THE FACTS AND ISSUE INVOLVED IN CASE OF THE ASSESSEE FOR AY 2002-03 AND 2003-04 ARE SIMILAR TO THAT OF AY 20 01-02 AND BOTH THE SIDES REQUESTED THE BENCH THAT THE DECISION TAK EN IN THE CASE OF THE ASSESSEE IN AY 2001-02 MAY BE FOLLOWED IN AY 20 02-03 AND IT (SS) A NO.50, 51 AND 52/A/2010 (AY: 2001-02 TO 2 003-04) LAXMI PULSE RICE & ROLLER MILLS, VS ACIT, CC-1, BAR ODA 7 2003-04, WE HEREBY ALLOW BOTH THE APPEALS OF THE AS SESSEE IN IT(SS)A NO.51 AND 52/AHD/2010 FOR AY 2002-03 AND 20 03-04. 6. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSE SSEE ARE ALLOWED. SD/- SD/- (KUL BHARAT ) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTNT MEMBER LAKSHMIKANTA DEKA/ LAKSHMIKANTA DEKA/ LAKSHMIKANTA DEKA/ LAKSHMIKANTA DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: NO DICTATION COVERED MATTER 02-08-12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 02-08-12 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: