Income Tax Appellate Tribunal - Ahmedabad
Acit,(Osd), Circle-10,, Ahmedabad vs Sj & Sp Family Trust,, Ahmedabad on 22 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH AHMEDABAD
BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA Nos. 2802 & 2803/Ahd/2013
(Assessment Years: 2004-05 & 2005-06)
Asst. Commissioner of Income-tax (OSD),
Circle - 10, Ahmedabad Appellant
Vs.
SJ & SP Family Trust,
1st Floor, Popular House,
Ashram Road, Ahmedabad Respondent
PAN: AAATS5877R
राज व क ओर से/By Revenue : Shri K. D. Ratnoo, D.R.
आवेदक क ओर से/By Assessee : S. N. Soparkar & Urvashi
Shodhan, A.R.
सन
ु वाई क तार ख/Date of Hearing : 20.10.2016
घोषणा क तार ख/Date of
Pronouncement : 22.11.2016
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
These two Revenue's appeals for assessment years 2004-05 and 2005- 06 arise against CIT(A)-XVI, Ahmedabad's orders; both dated 16.06.2013, passed in appeal nos. CIT(A)-XVI/ ACIT/Cir.11/574/11-12 & CIT(A)- XVI/ACIT/Cir.11/575/11-12; respectively, in proceedings u/s.143(3) r.w.s. 254 of the Income Tax Act,1961; in short 'the Act'.
ITA Nos. 2802 & 2803/Ahd/2013 (AC IT vs. SJ & SP Family Trust) A.Ys. 2004-05 & 2005-06 -2-
2. We come to Revenue's pleadings in the instant appeals. Its first two identical grounds challenge the lower appellate orders in deleting Section 40A(2)(b) interest disallowances/ additions of Rs.1,11,45,599/- each, further annulling the impugned consequential assessments as time barred and in reversing the above disallowance qua Section 80IA deduction by excluding the interest income whilst computing the same; respectively. Both parties at the outset inform us that they are making their submissions only qua Section 40A(2)(b) interest issue and the second one pertaining to legality of the impugned consequential assessments. They further state that relevant facts and circumstances in both assessment years are identical. We thus treat Revenue's appeal ITA No.2802/ Ahd/2013 for A.Y. 2004-05 as the lead case.
3. This appears to be second round of litigation before the tribunal. The assessee is a specific trust engaged in bidi manufacturing since assessment year 1988-89. It filed return on 26.10.2004 stating income of Rs.3,64,62,407/-. The Assessing Officer completed a regular assessment on 28.02.2006 making Section 40A(2)(b) disallowance/addition of Rs.1,25,38,799/- after holding that assessee's interest expenditure incurred @ 22% in case of specified parties was an excessive one to the extent of 9%. The CIT(A) affirmed the same in first round of proceedings vide order dated 14.08.2008. The assessee filed ITA No.3404/Ahd/2008 before this tribunal. A co-ordinate bench in its order dated 07.08.2009 remitted the issue back to the Assessing Officer for decision afresh after taking into account all prevailing circumstances in relation to the impugned loans availed from specified parties as well as other creditors.
4. The Assessing Officer framed impugned consequential assessment on 23.12.2011. He observed first of all that the assessee did not produce all relevant details except those already on record in first round of assessment. ITA Nos. 2802 & 2803/Ahd/2013 (AC IT vs. SJ & SP Family Trust) A.Ys. 2004-05 & 2005-06 -3- He thereafter opined that the said details revealed that the lending rate in question in the impugned assessment year ranged between 11 to 12%. The assessee had itself paid interest @ 13 to 14% to non specified parties. The Assessing Officer benchmarked the same to at market rate. His view was that assessee's taxable profits were @8.66% only whereas the impugned interest amount was @ 22%. The Assessing Officer thereafter prepared a comparative chart demonstrating that similar interest amount paid @ 22% stood accepted from assessment year 1989-90 to assessment year 2003-04 and @ 18% to 14% in subsequent assessment years 2006-07 to 2008-09. He thus held interest rate @ 14% to be reasonable and at market rate thereby disallowing/adding the remaining one @8% coming to Rs.1,11,45,599/- in question to be excessive u/s.40A(2)(b) of the Act.
5. The assessee filed yet another appeal. It raised two specific contentions. First one pleaded that the impugned consequential assessment was variable time barred as per Section 153(2A) of the Act. Latter one assailed correctness of the impugned interest disallowance/addition on merits. The CIT(A) sought a remand report. The Assessing Officer submitted the same on 16.03.2013 stating that the CIT-V, Ahmedabad had received this tribunal's remand order in September 2009. The file thereafter came to him on 19.10.2011. The CIT(A) accepts both of assessee's contentions hereinabove as under:
"3.6 On analyses of the facts of the case, it is clear that the order of Hon'ble Tribunal was received in the office of CIT-V, Ahmedabad in September, 2009. Thus within the meanings of section 153 above, an order framing afresh assessment order was to be mandatorily passed on or before 31-03-2011. Facts available on records indicate that order u/s. 143(3) rws 254 was passed by the A O on 23-12-2011. The argument of the A O that the order: passed by him is not a defacto de-novo order but an order just to comply to specific directions of the Hon'ble Tribunal and hence it is not a time barred order are not correct since the directions of the Tribunal mentioned supra clearly indicate that the Hon'ble Tribunal had in unequivivocal terms directed passing of afresh assessment order. Thus seen the order u/s. 143(3) / 254 suffers from the vice of an order which was ITA Nos. 2802 & 2803/Ahd/2013 (AC IT vs. SJ & SP Family Trust) A.Ys. 2004-05 & 2005-06 -4- passed beyond the mandatory time limit prescribed u/s. 153 and hence deserves to be annulled. Consequently, the order u/s. 143(3) / 254 passed by the A O making an addition of Rs. 1,11,45,599/- on account of excess interest paid to persons u/s. 40A(2)(b) is hereby annulled and the ground of appeal No.2 & 3 raised are allowed.
3.7 Without prejudice to the above decision of annulling the assessment order u/s. 143(3) / 254, it is seen that even on merits, the addition made by the Id A 0 does not satisfies any logical deduction. As against the appellants claim of interest at the rate of 22% on loans to persons specified u/s. 40A(2)(b), the id A O has restricted the said to 14% on the plea that 22% was not the market rate and that the appellant has purposefully paid higher rate of interest: It is pertinent to point out that the Id A O has not brought upon record any specific material to substantiate his finding. Further, I find force in the argument of the appellant that the persons to whom interest has been paid are in highest rates of taxation and thus effectively there is no loss of revenue. Facts of the case also indicate that the rate of 22% interest payment was allowed to the appellant in earlier from A Y 92- 93 to A Y 2003-04. The facts of the case of current years being identical to the earlier years therefore would not warrant any different treatment. Without prejudice to the above examination of judicial citations relied upon by the appellant indicate that payment of interest rates of 22% pertaining to persons covered u/s. 40A(2)(b) stands allowed. In view of the discussions made above, it is held that even on merits, no addition was required to be made by the ld. A O. Accordingly, the addition made by the ld A O is therefore deleted and the ground of appeal No. 1 is also allowed."
6. Heard both sides reiterating their respective stands. Case file perused. We first come to legal issue as to whether the impugned consequential assessment is time barred or not. There is not dispute that this tribunal passed its remand order on 07.08.2009. The CIT as well as Assessing Officer concerned received the same in September 2009 and 19.10.2011; respectively. We notice at this stage that Section 153(2A)as it this was postulates framing of assessments in pursuance to tribunal's directions issued u/s.254 of the Act; to be made at any time before the expiry of one year from the end of the financial year from the receipt of the remand order in question. This is followed by second proviso thereof; as it then was, envisaging that where a Commissioner of Income Tax receives tribunal's order u/s.254 of the Act before 01.04.2011, the provisions of this section shall have effect as if for the words "one year", the words "nine months" have been substituted. We observe in this backdrop that the Assessing Officer ought to have completed ITA Nos. 2802 & 2803/Ahd/2013 (AC IT vs. SJ & SP Family Trust) A.Ys. 2004-05 & 2005-06 -5- the impugned assessment within a period of nine months from the end of the financial year of tribunal's remand order 2009-10 upto 31.12.2010 whereas the Assessing Officer has passed consequential order on 23.12.2011. We thus find no reason to interfere in the CIT(A)'s order annulling the impugned consequential assessment as time barred. The Revenue fails in its legal ground.
7. This leaves us with the latter issue on merits as to whether the assessee's interest paid @ 22% could be held to be excessive u/s.40A(2)(b) of the Act. There is no dispute that neither of the lower authority has arrived at any market rate of interest independently right from first round of assessment. The Assessing Officer in consequential order merely benchmarks assessee's interest rate in case of non specified parties. Hon'ble jurisdictional high court in case of CIT vs. Sarjan Realties Ltd. (2014) 227 Taxman 225 (Gujarat) holds that the impugned disallowance does not arise merely because an assessee has paid interest at lower rate to other payees. We reiterate that the Assessing Officer heavily relies on assessee's bank borrowings @ 14%. Shir Soparkar at this stage takes us to page 32 of the paper book containing hon'ble jurisdictional high court's decision in Tax Appeal No.2488/2010 decided on 18.01.2012 CIT vs. Prabhudas Kishoredas (assessee's sister concern) pertaining to the very assessment year holding identical interest rate @22% to be reasonable. He thereafter quotes hon'ble jurisdictional high court's yet another decision PCIT vs. Gujarat Gas Financial Services Ltd. (2015) 233 Taxman 532 (Gujarat) concluding that the impugned disallowance does not come into play if both payer as well payee are assessed at maximum marginal rate as per CBDT's circular no.6 dated 06.07.1968. The Revenue fails to rebut all these legal developments. We thus find no reason to interfere in the lower appellate order under challenge. This Revenue's appeal ITA No.2802/Ahd/2013 is declined. ITA Nos. 2802 & 2803/Ahd/2013 (AC IT vs. SJ & SP Family Trust) A.Ys. 2004-05 & 2005-06 -6-
8. Same order to follow in Revenue's latter appeal ITA No.2803/Ahd.2013 for assessment year 2005-06 ad we have already indicated that there is no distinction involved in the same.
9. These two Revenue's appeals are dismissed.
[Pronounced in the open Court on this the 22nd day of November, 2016.] Sd/- Sd/-
(N. K. BILLAIYA) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 22/11/2016
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आय!
ु त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।