Income Tax Appellate Tribunal - Ahmedabad
Asstt.Commissioner Of Income Tax,, ... vs M/S. Priya Blue Industries Pvt.Ltd.,, ... on 13 April, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'डी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD सव ी एस.एस.गोदारा, या यक सद य एवं द प कुमार के डया, लेखा सद य के सम । BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No.756/Ahd/2015 ( नधा रण वष / Assessment Year : 2011-12) The ACIT बनाम/ M/s.Priya Blue Industries Circle-1 Vs. Pvt.Ltd.
Bhavnagar Plot No.1563, Ashirwad
Nr.Rupani,
Bhavnagar-364 001
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABCP 2808 B (अपीलाथ' /Appellant) .. ( (यथ' / Respondent) अपीलाथ' ओर से /Appellant by : Shri R.P. Maurya, Sr.DR (यथ' क* ओर से/Respondent by : Shri Tushar Hemani, AR ु वाई क* तार ख / सन Date of Hearing 23/03/2018 घोषणा क* तार ख /Date of Pronounce ment 13/ 04 /2018 आदे श / O R D E R PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the appellate order of the Commissioner of Income Tax(Appeals)-6, Ahmedabad [CIT(A) in short] dated 05/01/2015 arising in the assessment order passed under s.143(3) of the Income Tax ITA No.756/Ahd/2015 ACIT vs. Priya Blue Industries P.Ltd.
Asst.Year - 2011-12 -2- Act, 1961 (hereinafter referred to as "the Act") dated 14/03/2014 relevant to Assessment Year (AY) 2011-12.
2. The Revenue is aggrieved by the action of the CIT(A) in deleting the addition of Rs.46,51,963/- made under s.40A(2)(b) of the Act.
3. Briefly stated, the assessee is engaged in ship breaking activities. The return of income of Rs.2,55,34,607/- filed by the assessee (relevant to AY 2011-12) was subjected to scrutiny assessment. The AO noticed that the assessee inter alia paid interest to directors of the company at higher rate of 18% p.a. whereas the assessee has also paid interest on borrowed funds at lower rate of 11% - 13% to other parties. The AO accordingly held that nearly 5% has been paid to the directors in excess of fair market value of lending rate and consequently quantified the disallowance of excess interest amounting to Rs.46,51,963/- with the aid of section 40A(2)(b) of the Act.
4. The CIT(A), however, revisited the entire issue and found merit in the case of the assessee for non-applicability of section 40A(2)(b) of the Act. The relevant para of the order of the CIT(A) is reproduced hereunder:-
"5.2 At para-16 of the assessment order; AO observed that the appellant had paid interest @ 18% to two directors of the company as ITA No.756/Ahd/2015 ACIT vs. Priya Blue Industries P.Ltd.
Asst.Year - 2011-12 -3- against the interest paid @ 11% to 13% to other parties and therefore interest of 5% was considered as excessive and was being disallowed. The contentions of the Ld. A.R. are that the appellant had paid interest @ 18% to two unrelated parties namely Marineline Ship Breakers Pvt. Ltd. & M/s R.K. Gupta & Sons ; therefore AO's observation that the interest paid to other parties was @ 11% to 13% only was factually incorrect; bank provides loan @ 11% to 14% with full security and guarantee ; interest of 18% to 24% on unsecured loans is reasonable ; it was so held by the Ahmedabad Tribunal in the case cited at 92 TTJ 223; the directors did not charge any amounts from the appellant for the guarantee provided by them in connection with the loan taken from Indian Overseas Bank; if the cost for guarantee is taken into consideration, the rate of interest works out to 23.81% as against which the interest paid was @ 18% and therefore the disallowance u/s 40A(2)(b) was unwarranted.
5.3 Having considered the facts of the matter, I am inclined to accept the contentions of the Ld. A.R. As held by various Tribunals interest upto 24% on unsecured loans was held to be reasonable [and not excessive within the meaning of section 40A(2)(b)]. It is also seen that interest @ 18% was paid to two other unrelated parties. I am of the view that interest paid @ 18% to the directors cannot be held to be excessive or unreasonable. Impugned disallowance is deleted. This ground of appeal is allowed."
5. Aggrieved, the Revenue is in appeal before the Tribunal.
6. We have heard both the parties. The limited issue for adjudication in the instant case is applicability of section 40A(2)(b) of the Act to the interest paid to directors in excess of interest paid to other parties. On behalf of the assessee, it was firstly contended that it is not the directors of the assessee alone who have been paid interest @ 18% p.a. on the ITA No.756/Ahd/2015 ACIT vs. Priya Blue Industries P.Ltd.
Asst.Year - 2011-12 -4- loans/advances availed but there are other parties too to whom interest @ 18% p.a. was paid on the loans/advances availed. The parties Marine Line Ship Breakers Pvt.Ltd. and R.K.Gupta & Sons was referred to augment the aforesaid contention. It is thus contended on behalf of the assessee that the provisions of section 40A(2)(b) cannot be applied to interest costs towards borrowals from directors where the interest cost incurred qua non-related parties are similar and comparable. Secondly, it is contended on behalf of the assessee that the value of services i.e. market rate of interest has not been independently determined by AO at all and therefore there was no warrant for the AO to hold interest paid to the directors as excessive to the extent of 5% on the loans availed. For this proposition, the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Sarjan Realities Ltd. (2014) 50 taxmann.com 52(Guj.) was relied upon. In short, it was contended on behalf of the assessee that the interest paid to the directors @ 18% per annum on the loans availed cannot be said to be excessive and unreasonable having regard to the comparable cases as pointed out and also in the absence of any independent finding towards prevalent market rate of interest to be lower than the rate at which interest costs have been incurred.
7. We find substance at the first instance on the plea paddled on behalf of the assessee that interest rate @ 18% cannot be seen as excessive or unreasonable having regard to the fact that the assessee has ITA No.756/Ahd/2015 ACIT vs. Priya Blue Industries P.Ltd.
Asst.Year - 2011-12 -5- incurred interest costs at the similar rate on borrowed funds from uncontrolled parties. This fact itself proves the case of the assessee in affirmative. The revenue has not been able to counter this aspect of justification for making payment of interest alleged at higher rate qua other lenders. Therefore, we do not consider it necessary to look into the other plea of the assessee on requirement of determination of market rate of interest independently. In view of the aforesaid discussion, we do not find any infirmity in the order of the CIT(A) in drawing conclusion in favour of the assessee.
8. In the result, appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 13/ 04/2018
Sd/- Sd/-
(एस.एस.गोदारा) ( द प कुमार के डया)
या यक सद य लेखा सद य
( S.S. GODARA ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 13/ 04/2018
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
ITA No.756/Ahd/2015
ACIT vs. Priya Blue Industries P.Ltd.
Asst.Year - 2011-12
-6-
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ' / The Appellant
2. (यथ' / The Respondent.
3. संबं6धत आयकर आयु8त / Concerned CIT
4. आयकर आयु8त(अपील) / The CIT(A)-6, Ahmedabad
5. 9वभागीय त न6ध, आयकर अपील य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स(या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 13.4.18 (dictation-pad 7+7pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...23.4.18
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......13.4.18
7. Date on which the file goes to the Bench Clerk.....................13.4.18
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................