The DCIT, Circle-10, Ahmedabad v. M/s. Ambalal Ranchhoddas & Sons, Ahmedabad

MA 110/AHD/2013 | 1993-1994
Pronouncement Date: 25-10-2013 | Result: Allowed

Appeal Details

RSA Number 11020524 RSA 2013
Bench Ahmedabad
Appeal Number MA 110/AHD/2013
Duration Of Justice 4 month(s) 12 day(s)
Appellant The DCIT, Circle-10, Ahmedabad
Respondent M/s. Ambalal Ranchhoddas & Sons, Ahmedabad
Appeal Type Miscellaneous Application
Pronouncement Date 25-10-2013
Appeal Filed By Department
Order Result Allowed
Bench Allotted C
Tribunal Order Date 25-10-2013
Date Of Final Hearing 18-10-2013
Next Hearing Date 18-10-2013
Assessment Year 1993-1994
Appeal Filed On 12-06-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI T.R. MEENA ACCOUNTANT MEM BER DCIT CIRLCE-10 AHMEDABAD (APPELLANT) VS M/S. AMBALAL RANCHHODDAS & SONS ABHIJIT BUILDING MITHAKHALI SIX ROAD AHMEDABAD PAN/GIR: 31-106-FZ-7092 (RESPONDENT) DCIT CIRLCE-10 AHMEDABAD (APPELLANT) VS M/S. AMBALAL RANCHHODDAS & SONS ABHIJIT BUILDING MITHAKHALI SIX ROAD AHMEDABAD PAN/GIR: 31-106-FZ-7092 (RESPONDENT) REVENUE BY: SRI K.C. MATHEWS SR.D.R. ASSESSEE BY: SRI P.M. MEHTA A.R. M.A. NO. 110/AHD/2013 (ARISING OUT OF ITA NO. 1400/AHD/1997) ASSESSMENT YEAR 1993-94 ITA NO. 1400/AHD/1997 ASSESSMENT YEAR 1993-94 M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 2 DATE OF HEARING : 18-10-2013 DATE OF PRONOUNCEMENT : 25-10-20 13 / ORDER PER : T.R. MEENA ACCOUNTANT MEMBER:- THIS M.A. IS FILED BY THE REVENUE AGAINST THE TRIB UNALS ORDER DATED 12-10-2012. THE REVENUE HAD FILED AN APPEAL AND TH E FOLLOWING GROUNDS WERE RAISED:- (I). THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE AO OF RS. 1 87 472/- ON ACCOUNT OF DISALLOWANCE OF INTEREST. (II). THE LD. CIT(A) CANCELING THE DISALLOWANCE MAD E BY THE AO OF RS. 3 43 144/- U/S. 40(A)(2)(B) OF I T ACT. 2. THIS BENCH HAD DECIDED THAT APPEAL OF THE REVENU E BY APPLYING THE CBDT INSTRUCTION NO. 3 OF 2011 DATED 09-04-2011 AND ALSO HONBLE GUJARAT HIGH COURT DECISION IN CASE OF CIT VS. SURESHCHANDR A DURGAPRASASD KHTOD (HUF) IN TAX APPEAL NO. 1404/AHD/2010. THE APPEA L WAS DECIDED ON THE BASIS OF TAX EFFECT INVOLVED AND IT WAS HELD THAT R EVENUES APPEAL WAS NOT MAINTAINABLE. THE REVENUE HAS THUS FILED THIS MA. ON 12-06-2013 AND SUBMITTED THAT THE TAX EFFECT IN THIS CASE FOR 1993 -94 IS RS. 1 75 169/- WHICH IS MORE THAN THE PRESCRIBED LIMIT FOR THE YEAR 1996 -97 WHICH WAS RS. M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 3 25 000/- THEREFORE IT WAS REQUESTED BY THE REVENUE TO RECALL ITS ORDER IN ITA NO. 1400/AHD/ DATED 12-10-2012 AND DECIDE THE CASE ON MERITS. 3. WE HAVE HEARD BOTH THE SIDES AND CONCLUDED THAT THIS MATTER IS REQUIRED TO BE ADJUDICATED ON MERIT. THEREFORE WE RECALL OUR ORDER DATED 12- 10-2012. 4. IN THE RESULT MA IS ALLOWED. DECISION ON MERIT IN ITA NO. 1400/AHD/AHD/97 FOR A. Y. 1993-94 5. FIRST GROUND IS AGAINST DELETING THE DISALLOWANC E OF INTEREST OF RS. 1 87 447/-. THE AO OBSERVED THAT THERE WAS A DIFFE RENT AMOUNT OF INTEREST I.E. 36% -18% IN THE CASE OF RS. 90 LACS UTILIZED B Y M/S. ARCOY INDUSTRIES AND RS. 25 LACS UTILIZED BY M/S. ARCOY SERVICES FOR THE ABOVE SAID PERIOD. THE AO GAVE REASONABLE OPPORTUNITY OF BEING HEARD O N THIS ISSUE. THE ASSESSEE HAS STATED THAT MONEYS WERE BORROWED FOR I NVESTMENT IN HIGH RISK OF M/S. SARABHAI GROUP AND IT SHOULD BE ALLOWED. THE AO HELD THAT THE ASSESSEE COULD NOT MADE OUT OF COMMERCIAL EXPEDIENC Y. HE ALSO RELIED UPON IN THE CASE OF MACDWELL AND OTHERS VS. CTO (1985) 1 54 ITR 148 (SUPREME COURT). AS THE DIFFERENCE IN INTEREST FOUND TO M/S . ARCOY INDUSTRIES AFTER BORROWING FROM THE 4 PARTIES MENTIONED AT SR. NO. 1 -4 IN PARA 3 ON HIS ORDER WAS DISALLOWED OUT OF THE INTEREST PAYMENT LIABILIT Y. THUS HE MADE ADDITION OF RS. 1 87 447/-. THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO HAD ALLOWED THE APPEAL PARTLY BY OBSERVING AS UNDER :- M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 4 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAD BORROWED FUNDS FROM THE PART IES AND UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF ITS BUSINESS. THE APPELLANT HAD PAID INTEREST AT THE RATE OF 40% ON SUCH BORROWERS (INTEREST AT THE RATE OF 10% AND SERVICE CHARGES AT THE RATE OF 21%). PR OVISION OF SECTION 40A(2)(B) IS APPLICABLE IN THIS CASE. IN AS MUCH A S THE APPELLANT HAS PAID HIGHER RATE OF INTEREST TO THE RELATIVES OF TH E PARTNERS AS COMPARED TO THE OTHER CREDITORS. THE APPELLANT HAS NOT BEEN ABLE TO FULLY JUSTIFY THE PAYMENT OF HIGHER RATE OF INTERES T. THE APPELLANT HAS PAID INTEREST AT THE RATE OF 36% IN RESPECT OF BORR OWERS MADE FROM FINANCING COMPANIES. THUS IT WOULD BE FAIR AND REAS ONABLE TO ALLOW INTEREST AT THE RATE OF 36% IN RESPECT OF BORROWERS MADE FROM THE THREE PARTIES. THE EXCESS OF 4% MAY BE DISALLOWED CONSIDERING IT AS EXCESSIVE. . THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN DISALLOWING THE ENTIRE SERVICE CHARGES. HE IS CIRECTED TO ALLOW DE DUCTION TOWARDS INTEREST IN RESPECT OF THE THREE PARTIES MENTIONED ABOVE AT THE RATE OF 36% AND DISALLOW THE BALANCE AMOUNT. 6. NOW REVENUE IS BEFORE US. LD. DR VEHEMENTLY REL IED UPON THE ORDER OF AO AND PRAYED TO CONFIRM THE ORDER OF AO. AT TH E OUTSET LEARNED COUNSEL FOR THE APPELLANT SUPPORTED THE ORDER OF CIT(A) AND ALSO RELIED UPON CO- ORDINATE B BENCH DECISION IN CASE OF ARCOY INDUST RIAL CEMENT PVT. LTD. IN ITA NO. 3370 DATED 17-05-2013. 7. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIAL ON RECORD. THE CO-ORDINATE B BENCH IN CASE OF ARCOY INDUSTRIAL CEMENT P. LTD. IN ORDER DATED 17-05-2013 HAD DECIDED THIS ISS UE IN A.Y. 1993-94 IN GROUND NO. 3 FOR A.Y. 2003-04. THE CO-ORDINATE BEN CH HAD DECIDED THIS ISSUE BY FOLLOWING THE ORDER OF CO-ORDINATE BENCH I N CASE OF ARCOY INDUSTRIAL CEMENT PVT. LTD (SUPRA) WHO HAD RENDERED SIMILAR SERVICES AND M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 5 EARNED SIMILAR INCOME THAT OF ASSESSEE IN THE PRESE NT CASE BEFORE US WHEREIN THE CO-ORDINATE BENCH HAS HELD AS UNDER: 4. IN APPEAL THE ASSESSEE'S CONTENTION BEFORE LD. CIT(A) WAS THAT THE ASSESSEE FIRM CARRIES ON BUSINESS OF BILL DISCO UNTING SINCE ASSESSMENT YEAR 1990-91. THE SAID BUSINESS WAS EXCL USIVELY WITH THE COMPANIES OF SARABHAI GROUP IN WHICH THE ASSESSEE H AD EARNED RETURN OF 42%. IT IS A VERY HIGH RISKY BUSINESS. TH E ASSESSEE HAD DISCUSSIONS WITH THE MANAGEMENT OF THE ASHIMA GROUP TO SHARE THE RISK PERTAINING THE BILL DISCOUNTING BUSINESS WITH SARABHAT GROUP. THE ASSESSEE THEREFORE SUBMITTED THAT IT HAD BORRO WED AN AGGREGATE AMOUNT OF RS.25 LACS FROM ASHIMA GROUP. THE INTERES T ON THE BORROWINGS WAS PAYABLE AT 42% PER ANNUM. M/S. ASHIM A SYNTEX HAS AGREED TO MAKE GOOD AND LOSS IF ANY THAT THE ASSES SEE MAY SUFFER UPON THE SARABHAI GROUP FAILING TO REPAY THE FUNDS. IT IS STATED THAT IT WAS A BORROWING CUM GUARANTEE ARRANGEMENT. THE ASSE SSEE HAD TO PAY NIGH RATE OF INTEREST IN ORDER TO CONTINUE THE LUCRATIVE BILL DISCOUNTING BUSINESS WITH THE SARABHAI GROUP AND AT THE SAME LIME TO SHARE THE RISK OF THE BUSINESS WITH ANOTHER PART Y. IT IS FURTHER STATED THAT THE TOTAL EARNING BY WAY OF BILL DISCOUNTING B USINESS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS RS.24 12 478/- AS AGAINST THE TOTAL PAYMENT BY WAY OF INTEREST AND SE RVICE CHARGES AGGREGATING TO RS 12.25 267/-. IT WAS ARGUED THAT THE OBSERVATION MADE BY THE A.O. THAT THE ASSESSEE HAS DIVERTED HIS INCOME TO REDUCE TAX LIABILITY IS TOTALLY IS UNJUSTIFIED. IT IS FURT HER SUBMITTED THAT THE ASSESSEE HAD ADVANCED BORROWED AMOUNT TO THE ASSOCI ATE CONCERNS FOR A SMALL INTERVENING PERIOD. THE ASSESSEE RECEIV ED BACK THE AMOUNT FROM THE SISTER CONCERNS AND THE WHOLE AMOUNT WAS U TILIZED FOR THE PURPOSE OF BILL DISCOUNTING BUSINESS. THE ASSESSEE DO NOT WANT TO KEEP THE MONEY HENCE IT WAS UTILIZED FOR SHORT TERM PERIOD. 5.. 6.. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THE ASSESSEE HAD BORROWED FUNDS FOR BILL DISCOUNTIN G BUSINESS AT THE INTEREST RATE RANGING BETWEEN 12% TO 42%. WE FURTHE R FIND THAT THE ASSESSEE HAD EARNED HIGHER RATE OF INTEREST FROM FU ND ADVANCED TO SARABHAI GROUP OF COMPANIES IN CONNECTION WITH BILL DISCOUNTING. M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 6 WHEN THE ENTIRE FUNDS AVAILABLE AT THE DISPOSAL OF THE ASSESSEE WERE NOT UTILIZED FOR THE PURPOSE OF ITS BUSINESS THE A SSESSEE HAD GIVEN SHORT TERM LOAN TO ITS ASSOCIATE CONCERNS AT THE RA TE OF 18%. IT IS NOT A CASE WHERE THE ASSESSEE HAD DIVERTED THE ENTIRE BOR ROWED AMOUNT TAKEN BY HIM ON A HIGHER RATE OF INTEREST TO THE SI STER CONCERN AT A LOWER RATE OF INTEREST AND INCURRED LOSS. THE ASSES SEE IN FACT DID NOT WANT TO KEEP THE MONEY IDLE THEREFORE HE UTILIZED IT BY GIVING SHORT TERM LEAN TO ITS SISTER CONCERN. THE ASSESSEE COULD NOT BE EXPECTED TO HAVE CHARGED THE SAME RATE OF INTEREST TO ITS ASSOC IATE CONCERN WHICH HE HAD CHARGED FROM SARABHAI GROUP OF COMPANIES. TH EREFORE THERE WAS NOTHING SHAM ABOUT THIS TRANSACTION AND THE A.O . WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAD DELIBERA TELY MADE AN ATTEMPT TO REDUCE THE TAX LIABILITY. HE WAS NOT JUSTIFIED I N DISALLOWING THE PART OF THE INTEREST EXPENSES WHICH WERE A GENUINE CLAIM AND LD. CIT(A) WAS RIGHTLY DELETED THE ADDITION MADE BY THE A.O. B Y MAKING SUCH DISALLOWANCE. THE ORDER PASSED BY LD. CIT(A) IS HER EBY UPHELD' THE ISSUE IS IDENTICAL IN ASSESSEES CASE AND ARCOY INDUSTRIES CEMENT PVT. LTD (SUPRA). RESPECTFULLY FOLLOWING THE ABOVE DECISION WE DO NO T HESITATE TO UPHELD THE ORDER OF LD. CIT(A). THIS GROUND OF REVENUES APPE AL IS DISMISSED. 8. SECOND GROUND OF REVENUE IS AGAINST DELETING DIS ALLOWANCE OF RS. 3 43 144/- OF FINANCIAL CHARGES MADE U/S. 40(A)(2)( B) OF THE I.T. THE AO OBSERVED THAT ASSESSEE-FIRM IS ENGAGED IN THE BUSIN ESS OF DISCOUNTING OF HUNDIES FOR FINANCIAL YEAR UNDER CONSIDERATION. TH E ASSESSEE IS INCURRED INTEREST LIABILITY OF RS. 3 46 566/- ON BANK ADVANC E AND ANOTHER RS. 14 13 381/- ON LOAN TO DEPOSIT FROM FRIENDS AND REL ATIVES. THE ASSESSEE IN RESPECT OF ANAND VIPINCHANDRA SHAH NANDITA VIPINCH ANDRA SHAH & M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 7 PRANJALIBEN ANANDBHAI SHAH HAD PAID INTEREST @ 19% WHICH HAS BEEN DESCRIBED AS SERVICE CHARGES. THE DETAILS ARE AS U NDER:- 1). ANAND VIPINCHANDRA SHAH RS. 1 33 884/- 2). NANDITA VIPINCHANDRA SHAH RS. 66 005/- 3). PRANJALIBEN ANANDBHAI SHAH RS. 1 43 255/- . RS. 3 43 144/- THE ABOVE THREE PARTIES ARE CLOSE RELATIVES AND ARE COVERED U/S. 40(A)(2)(B) OF THE ACT. THE AO GAVE REASONABLE OPPORTUNITY OF BEING HEARD EXCESS PAYMENT OF INTEREST + SERVICES CHARGES TO THE RELAT IVES COVERED U/S. 40(A)(2)(B) OF THE I.T. ACT. THE ASSESSEE RESPONDE D. IT WAS HELD BY THE AO THAT THE FIRM HAD GIVEN SPECIAL TREATMENT TO THE RE LATIVE BY PAYMENT OF SERVICES CHARGES OF RS. 3 43 144/- TO THEM. THUS HE MADE ADDITION OF RS. 3 43 144/- U/S. 40(A)(2)(B) OF THE IT ACT. THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD DELETED THE ADDITION BY O BSERVING THAT ON IDENTICAL ISSUE HAS BEEN CONSIDERED BY HIM IN THE C ASE OF AMBALAL RANCHODDAS CHOKSHI VIDE ITS ORDER DATED 24/12/1996. FOR THE DETAILED REASONS MENTIONED IN THAT ORDER THE DISALLOWANCE MA DE BY THE AO IS DELETED. 9. NOW THE REVENUE IS BEFORE US. 10. LD. DR VEHEMENTLY RELIED ON THE ORDER OF THE AO . AT THE OUTSET LEARNED COUNSEL FOR THE APPELLANT RELIED ON CO-ORDI NATE B BENCH DECISION IN CASE OF AMBALAL RANCHHODDAS CHOKSI IN ITA NO. 7 58/AHD/1997 ASST. YEAR. 1993-94 WHEREIN IDENTICAL ISSUE HAS BEEN DECI DED BY THE HONBLE M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 8 BENCH IN FAVOUR OF ASSESSEE HE THEREFORE PRAYED TO CONFIRM THE ORDER OF LD. CIT(A). 11. WE HAVE HEARD THE RIVAL CONTENTION PERUSED THE MATERIAL ON RECORD. THE ISSUE IS IDENTICAL TO THE CASE OF M/S. AMBALAL RANCHHODDAS CHOKSHI ON THAT BASIS THE CIT(A) ALSO DELETED THE ADDITION . THE OPERATIVE PORTION OF THE ORDER IN CASE OF AMBALAL RANCHHODDAS CHOKSHI IS RE PRODUCED AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAD BORROWED FUNDS FROM THE PART IES AND UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF ITS BUSINESS. THE APPELLANT HAD PAID INTEREST AT THE RATE OF 40% ON SUCH BORROWERS (INTEREST AT THE RATE OF 10% AND SERVICE CHARGES AT THE RATE OF 21%). PR OVISION OF SECTION 40A(2)(B) IS APPLICABLE IN THIS CASE. IN AS MUCH A S THE APPELLANT HAS PAID HIGHER RATE OF INTEREST TO THE RELATIVES OF TH E PARTNERS AS COMPARED TO THE OTHER CREDITORS. THE APPELLANT HAS NOT BEEN ABLE TO FULLY JUSTIFY THE PAYMENT OF HIGHER RATE OF INTERES T. THE APPELLANT HAS PAID INTEREST AT THE RATE OF 36% IN RESPECT OF BORR OWERS MADE FROM FINANCING COMPANIES. THUS IT WOULD BE FAIR AND REAS ONABLE TO ALLOW INTEREST AT THE RATE OF 36% IN RESPECT OF BORROWERS MADE FROM THE THREE PARTIES. THE EXCESS OF 4% MAY BE DISALLOWED CONSIDERING IT AS EXCESSIVE. . THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN DISALLOWING THE ENTIRE SERVICE CHARGES. HE IS CIRECTED TO ALLOW DE DUCTION TOWARDS INTEREST IN RESPECT OF THE THREE PARTIES MENTIONED ABOVE AT THE RATE OF 36% AND DISALLOW THE BALANCE AMOUNT. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE B BENCH WE ALSO UPHELD THE ORDER OF LD. CIT(A). THIS GROUND OF REV ENUES APPEAL IS ALSO DISMISSED. M.A NO.110/AHD/2013(IN ITA NO. 1400/AHD/1997) A.Y. 1993-94 PAGE NO DCIT VS. M/S AMBALAL RANCHHODDAS & SONS 9 12. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (MUKKUL KR. SHRAWAT) ( T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 25/10/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER/ /