The ITO,S.K.Ward-1,, Himatnagar v. Ambica Ginning and Pressing Pvt.Ltd.,, Sabarkantha

ITA 570/AHD/2011 | 2007-2008
Pronouncement Date: 18-11-2011 | Result: Dismissed

Appeal Details

RSA Number 57020514 RSA 2011
Bench Ahmedabad
Appeal Number ITA 570/AHD/2011
Duration Of Justice 8 month(s) 24 day(s)
Appellant The ITO,S.K.Ward-1,, Himatnagar
Respondent Ambica Ginning and Pressing Pvt.Ltd.,, Sabarkantha
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 18-11-2011
Date Of Final Hearing 04-11-2011
Next Hearing Date 04-11-2011
Assessment Year 2007-2008
Appeal Filed On 24-02-2011
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI D.K.TYAGI JM AND A. MOHAN ALANKAMON Y AM. INCOME-TAX OFFICER S.K. WARD-1 HIMATNAGAR. VS. AMBICA GINNING & PRESSING (P) LTD. AT SAPAWADA TAL. IDAR DIST. SABARKANTHA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SAMIR TEKRIWAL SR.DR RESPONDENT BY:- SHRI S. N. DIVETIA AR DATE OF HEARING : 4/11/2011 DATE OF PRONOUNCEMENT : 18-11-11 O R D E R PER D. K. TYAGI JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 16/12/2010 RAISING FOLLOWING GROUNDS : - 1. THE LD. CIT(A)-VIII AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.16 47 827/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS WITHOUT PROPERLY APPR ECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECOR D BY THE AO. 1.2 IN DOING SO THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT THE TRANSACTIONS TO BE WRITTEN OF F NEED TO BE IN THE NATURE OF TRADE DEBTS ONLY AND IN THE ABSENCE O F ANY EVIDENCE ITA NO.570/AHD/2011 ASST. YEAR :2007-08 ITA NO.570/AHD/2011 ASST. YEAR 2007-08 2 IN SUPPORT OF THE SAME THE DEDUCTION COULD NOT HAV E BEEN ALLOWED U/S 36(1)(VII) OF THE ACT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE OF RS.3 78 699/- MADE BY THE AO BY INV OKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 2.2 IN DOING SO THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE INTEREST PAID @ 24% TO THE RELATED PARTIES CANNOT BE TREATED AS EXCESSIVE. 2. THE FIRST EFFECTIVE GROUND RELATES TO DELETION O F DISALLOWANCE OF BAD DEBTS WRITTEN OFF RS.16 47 827/-. THE AO HAS DISCUS SED THIS ISSUE IN PARA 5 OF THE ASSESSMENT ORDER. THE AO HAS DISALLOWED TH E BAD DEBTS MAINLY FOR THE REASON THAT THE ASSESSEE FAILED TO PROVE DU RING ASSESSMENT PROCEEDINGS THAT THE DEBT HAD BECOME BAD DURING THE YEAR UNDER CONSIDERATION. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN THE ASSESSEE MADE DETAILED SUBMISSIONS PLAC ING RELIANCE ON VARIOUS DECISIONS WHICH ARE MENTIONED FROM PAGES 3 TO 7 OF LD. CIT(A)S ORDER. THE LD. CIT(A) AFTER CONSIDERING THE CONTENT IONS OF AO AND THE SUBMISSIONS OF THE ASSESSEE RELYING ON THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF TFR LTD. VS. CIT 323 ITR 397 ( SC) DELETED THE ADDITION BY OBSERVING AS UNDER :- 4.2 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF TH E AO AS WELL THE SUBMISSION OF THE APPELLANT. THE AO HAS DISALLOWED IMPUGNED BAD DEBTS MAINLY ON ACCOUNT THAT THE ASSESSEE FAILED TO PROVE DURING ASSESSMENT PROCEEDINGS THAT THESE DEBTS HAVE BECOME BAD DURING THE YEAR UNDER ITA NO.570/AHD/2011 ASST. YEAR 2007-08 3 CONSIDERATION. BEFORE ME THE LD. AR SUBMITTED THAT ALL DEBTORS ARE RELATING TO TRADE TRANSACTIONS AND SALES CONSIDERAT ION AGAINST THESE TRANSACTIONS HAVE ALREADY BEEN OFFERED FOR INCOME I N THE EARLIER YEARS. THE APPELLANT IS ENGAGED IN THE BUSINESS OF COTTON. COTTON IS PURCHASED MAINLY IN WINTER WHICH ALWAYS CONSIST OF MOISTURE A ND IT IS MAINLY SOLD IN SUMMER BY THE TIME IT REACHES TO THE BUYER AT DIFFE RENT LOCATIONS ON ACCOUNT OF MOISTURE THERE IS ALWAYS SOME WEIGHT LO SS. THE DEBTORS HAVE NOT MADE PAYMENT TO THE APPELLANT MAINLY FOR WEIGHT LOSS. THE LD. AR FURTHER SUBMITTED THAT THESE DEBTS HAVE BEEN WRITTE N OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION. I AM OF THE CONSIDERED OPINION THAT THE FACTS OF T HE CASE ARE SQUARELY COVERED BY THE DECISION OF SUPREME COURT I N THE CASE OF TRF LTD. VS. CIT REPORTED IN 323 ITR 397. IN THIS CASE THE SUPREME COURT CATEGORICALLY HELD THAT POST 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BEC OME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE DISCUSSIONS HELD ABOVE AND PARTICULARLY WITH REFERENCE TO THE DECISION OF THE SUPREME COURT THE ADDITION ON ACCOUNT OF BAD DEBTS OF RS.16 47 827/- IS DELETED. 4. BEFORE US THE LD. DR RELIED ON THE AO WHEREAS TH E LD. COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RECORD WE FIND THAT THE AO HAD DISALLOWED IMPUGNED BAD DEBTS MAINLY ON ACCOUNT THAT THE ASSESSEE FAILED TO PROVE DURING THE ASSESS MENT PROCEEDINGS THAT THESE DEBTS HAD BECOME BAD DURING THE YEAR UNDER CO NSIDERATION. THE ASSESSEE HAD SUBMITTED THAT THESE DEBTS HAD BEEN WR ITTEN OFF IN THE BOOKS OF ACCOUNTS DURING THE YEAR UNDER CONSIDERATION. TH EREFORE WE ARE OF THE CONSIDERED VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADDITION AFTER RELYING ON THE DECISION OF THE HONB LE SUPREME COURT IN THE ITA NO.570/AHD/2011 ASST. YEAR 2007-08 4 CASE OF TRF LTD. VS. CIT (SUPRA) WHEREIN IT HAS BEE N HELD THAT AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. T HERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). WE UPHOLD THE SAME. THIS G ROUND OF REVENUE IS DISMISSED. 6. THE SECOND GROUND RELATES TO DELETION OF DISALLO WANCE OF RS.3 78 699/- MADE BY AO BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THE FINDINGS OF THE AO IN THI S REGARD ARE AS UNDER :- IN THE P & L ACCOUNT THE ASSESSEE HAD CLAIMED INTE REST EXPENSES OF RS.30 12 007/-. FROM THE TAX AUDIT REPORT IN FORM 3 CD IT WAS NOTED THAT THE ASSESSEE HAD PAID INTEREST OF RS.17 04 143/- TO 9 RELATED PARTIES COVERED U/S 40A(2)(B) OF THE IT ACT AT THE RATE OF 18% WHEREAS THE ASSESSEE HAD PAID INTEREST @ 14% TO OTHER PARTIES. IN OTHER WORDS THE ASSESSEE HAD PAID 4% UNREASONABLE/EXCESSIVE INTERES T TO RELATED PARTIES. THEREFORE HE ISSUED SHOW CAUSE NOTICE DTD.17.12.20 09 ASKING THE ASSESSEE TO SHOW CAUSE WHY THE EXCESS INTEREST PAID OF RS.3 78 699/- SHOULD NOT BE ADDED TO THE TOTAL INCOME U/S 40A(2)( B) OF THE IT ACT. 6.1 IN REPLY TO THE SHOW CAUSE NOTICE THE ASSESSEE VIDE LETTER DTD.21.12.2009 HAS INTER ALIA CONTENDED AS UNDER - YOUR SHOW CAUSE NOTICE DATED 17/12/2009 IS RECEIVE D. WITH REGARDS TO THE NOTICE WE GIVE OUR SUBMISSION AS UNDER : WE HAVE DEBITED INTEREST EXPENSES OF RS.3045617/- OUT OF THIS RS.1704143/- HAVE BEEN PAID TO RELATIVES @ 18% AS PER TERMS AND CONDITIONS BETWEEN DEPOSITOR AND COMPANY. THE RATE OF INTEREST IS AS P ER PREVAILING MARKET RATE OF UNSECURE LOAN. IN YOUR SHOW CAUSE NOTICE YOUR GOODSELF NOTED THAT COMPANY HAS RECEIVED INTEREST @14% FROM EUREKA TILES LTD. WE HERE WITH G IVE OUR EXPLANATION REGARDING MATTER THAT OUR COMPANY WAS INTERESTED IN ACQUIRING STAKE IN EUREKA TILES LTD. AND SOME AMOUNT WAS GIVEN TO THA T COMPANY. OUR ONE OF ITA NO.570/AHD/2011 ASST. YEAR 2007-08 5 DIRECTOR MR. J B PATEL WAS EMPOWERED TO TAKE NECESS ARY ACTION FOR THIS PURPOSE. MR. J B PATEL IS ALSO DIRECTOR IN M/S EURE KA TILES LTD. IN THE YEAR UNDER REVIEW. BUT DUE TO SOME UNEXPLAINABLE REASON OUR COMPANY HAS NOT ACQUIRED STAKE IN EUREKA TILES LTD. AFTER LONG DISC USSION THAT COMPANY IS GIVEN US INTEREST @ 14%. 6.2 THE ARGUMENTS ADVANCED BY THE ASSESSEE ARE CO NSIDERED BUT THE SAME ARE NOT ACCEPTABLE. THE CONTENTION OF THE ASSE SSEE THAT IT HAS RECEIVED INTEREST @ 14% FROM EUREKA TILES LTD. IS N OT RELEVANT TO THE ISSUE INVOLVED. HERE THAT THE QUESTION IS ABOUT THE PAYMENT OF INTEREST TO RELATED PARTIES AND NOT RECEIPT OF INTEREST FROM OT HER PARTIES. SINCE THE ASSESSEE HAS PAID MORE INTEREST TO RELATED PARTIES TO THE EXTENT OF 4% IN COMPARISON TO OTHER PARTIES SUCH EXCESS INTEREST W HICH WORKS OUT TO RS.3 78 699/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME U/S 40A(2)(B) OF THE I.T. ACT61. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELL ATE AUTHORITY WHEREIN THE ASSESSEE MADE DETAILED SUBMISSIONS WHICH ARE NA RRATED BY THE LD. CIT(A) FROM PAGES 9 TO 13 OF HIS ORDER. AFTER CONSI DERING THE CONTENTION OF AO AND THE SUBMISSIONS OF THE ASSESSEE THE LD. C IT(A) DELETED THE ADDITION. AGAINST THE DELETION OF THE ADDITION BY LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. DR RELYING ON THE ORDER OF AO SUBMITTED THAT ASSESSEE HAD PAID INTEREST OF RS.17 04 143/- TO 9 RELATED PARTIE S COVERED U/S 40A(2)(B) OF THE ACT AT THE RATE OF 18% WHEREAS THE ASSESSEE HAD PAID INTEREST @ 14% TO OTHER PARTIES. THUS THE ASSESSEE HAD PAID 4% EXCESSIVE INTEREST TO RELATED PARTIES. THEREFORE BY ISSUING SHOW CAUSE N OTICE TO THE ASSESSEE AND CONSIDERING THE REPLY OF THE ASSESSEE THE AO HA D DISALLOWED SUCH ITA NO.570/AHD/2011 ASST. YEAR 2007-08 6 EXCESS INTEREST OF RS.3 78 699/-. THE LD. CIT(A) HA S NOT APPRECIATED THE FACTS OF THE CASE PROPERLY AND DELETED THE DISALLOW ANCE WHICH IS NOT JUSTIFIED. THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 8. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSE E STRONGLY SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THA T THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION. HIS ORDER MAY KINDLY BE UPHELD. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAD CLAIMED GR OSS INTEREST EXPENSES OF RS.30 12 007/-. THERE WAS INCOME OF INTEREST RS. 18 07 109/-. NET INTEREST CLAIMED WAS RS.12.04.899/- DURING THE ASSE SSMENT PROCEEDINGS THE A O. OBSERVED THAT SOME PARTIES COVERED U/S 40A (2)(B) OF THE ACT WERE PAID INTEREST @ 18% WHEREAS THE OTHER PARTIES HAD BEEN PAID INTEREST @ 14%. THE A.O DISALLOWED 4% INTEREST PAID TO PARTI ES COVERED U/S 40A(2)(B) WHICH AMOUNTS TO RS.3 78 699/-. THE GROSS INTEREST PAID BY ASSESSEE IS RS. 30.12.008/- WHICH IS AS UNDER:- INTEREST TO RELATIVES @ 18% RS. 17 04 143/- INTEREST PAID TO MEHSANA URBAN CO OP. BANK RS. 13 07 6S5/- RS.30 12 008/- ITA NO.570/AHD/2011 ASST. YEAR 2007-08 7 THE ASSESSEE HAD PAID INTEREST EITHER TO BANK OR TO RELATIVES. THERE IS NO DOUBT THAT RELATIVES HAVE BEEN PAID INTEREST @ 18% WHERE AS BANK HAS BEEN PAID INTEREST @ 13% WHICH WORKS OUT TO AROUND @ 15% AFTER ADDING OTHER CHARGES ETC. WE ARE OF THE VIEW THAT B ANK BORROWINGS ARE AVAILABLE ONLY AGAINST PROPER SECURITIES AND AFTER COMPLIANCE OF MANY LEGAL FORMALITIES ON THE CITHER HAND BORROWING FROM RELATIVES ARE AVAILABLE ON VERY SHORT NOTICE AND WITHOUT ANY SEC URITY. THE EXTRA PAYMENT OF INTEREST @ 3% TO 4% IS AS PER PREVAILING MARKET RATE. WE FURTHER FIND THAT IN ASST. YEAR 2004-05 THE SAME PA RTIES WERE PAID INTEREST @ 24% WHICH HAD BEEN ACCEPTED BY THE AO. IN A Y 20 06-07 ALSO THE INTEREST PAID TO THOSE PARTIES WERE @ 24% WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE INTEREST HAS BEEN REDUCED F ROM 24% TO 18% AND WHICH IS REASONABLE AND SHOULD NOT HAVE BEEN DISTUR BED BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS BEFORE LD. CIT(A) ASSESSEE ALSO SUBMITT ED THAT INTEREST HAD BEEN CHARGED @ 14% FROM EUREKA TILES LTD. MR. J.B. PATEL WHO IS THE DIRECTOR OF THE ASSESSEE COMPANY IS ALSO DIRECTOR I N EUREKA TILES LTD. THE ASSESSEE COMPANY WAS INTERESTED IN ACQUIRING BUSINE SS STAKE IN EUREKA TILES LTD. MR. J.B. PATEL WAS EMPOWERED TO NEGOTIAT E ON BEHALF OF THE ASSESSEE COMPANY. BUT THE DEAL COULD NOT BE MATERIA LIZED IN SUBSEQUENT YEARS AND THEREFORE THE INTEREST WAS CHARGED @ 14% FROM EUREKA TILES LTD. WE ARE OF THE VIEW THAT THE BORROWINGS FROM AS SOCIATED PERSONS WAS FOR LONG TERM AND GENERALLY WITHOUT ANY SECURITY AN D THEREFORE THE ASSOCIATE PERSONS GIVE THE LOANS ON LITTLE HIGHER R ATE OF INTEREST AS PER MEMORANDUM OF UNDERSTANDING. THEREFORE THE INTEREST PAID @ 18% SHOULD NOT HAVE BEEN DISTURBED. WE FURTHER FIND THA T THE INTEREST PAID TO THESE PARTIES @ 24% HAD BEEN ACCEPTED BY THE DEPART MENT IN EARLIER YEARS. IN VIEW OF THE FACTS MENTIONED ABOVE THE DI SALLOWANCE OF THE AO ON ACCOUNT OF INTEREST @ 4% CANNOT BE SUSTAINED. IN OUR CONSIDERED ITA NO.570/AHD/2011 ASST. YEAR 2007-08 8 OPINION THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDI TION OF RS.3 78 699/-. NO INTERFERENCE IS CALLED FOR IN HIS ORDER. THEREFO RE WE UPHOLD THE SAME. 10. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 18-11-2011 SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD 1.DATE OF DICTATION 4/11/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 8/11/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .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 ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..