Income Tax Appellate Tribunal - Jaipur
Trimurty Buildcon P Ltd, Jaipur vs Dcit, Jaipur on 29 August, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM
vk;dj vihy la-@ITA No. 293/JP/2016 & 313/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2011-12 & 12-13.
Trimurty Buildcon P. Ltd., cuke The ACIT,
601, Geeta Enclave, Vs. Central Circle-3,
Vinobha Marg, C-Scheme, Jaipur.
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AABCT 7285 Q
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajeev Sogani (CA) and
Shri Rohan Sogani (CA
jktLo dh vksj ls@ Revenue by: Shri Varinder Mehta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 18.08.2017.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 29/08/2017.
vkns'k@ ORDER
PER SHRI KUL BHARAT, JM.
These two appeals by the assessee are filed against two separate orders of ld. CIT (A)-4, Jaipur dated 01.01.2016 and 07.02.2017 pertaining to assessment years 2011-12 & 12-13. Identical issues are involved in both these appeals, therefore, they are taken up together and are being disposed off by way of a consolidated order, for the sake of convenience. First, we take up assessee's appeal in ITA No. 293/JP/2016 pertaining to assessment year 2011-12. The assessee has raised the following grounds of appeal :-
" 1. In law and in facts and circumstances of the case, the CIT (A) ought to have deleted the addition made by the AO u/s 40A(2)(b) of 2 ITA No. 293/JP/2016 & 313/JP/2017 M/s. Trimurty Buildcon P. Ltd., Jaipur.
the Income Tax Act, 1961 since the payment is neither excessive nor unreasonable under the peculiar facts and circumstances of the case.
2. In law and in facts and circumstances of the case, the CIT (A) ought to have further held that since the AO having failed to bring any cogent evidences to that justify that interest paid at 15% is excessive or unreasonable, the condition precedent for invoking section 40A(2) is not satisfied.
3. In law and in facts and circumstances of the case, the CIT (A) ought to appreciated from the details submitted before the AO that the interest payment commensurate with the prevailing industry norms and since 40A(2)(b) is not being a charging section, the impugned addition is contrary to the law.
4. In law and in facts and circumstances of the case, the CIT (A) has grossly erred in confirming the impugned addition of Rs. 9,63,673/- of interest paid u/s 40A(2)(b) of the Act alleging the lack of commercial expediency. The impugned addition is therefore contrary to the scope of provision of section 40A(2)(b) of the Income Tax Act, 1961.
5. In law and in facts and circumstances of the case, the CIT (A) ought to have inter alia appreciated that since the AO having examined the legitimacy of the payment of interest paid by the appellant to these parties in the past assessments, the learned CIT (A) ought to have therefore deleted the said addition.
6. The Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.
2. Briefly stated the facts of the case are that the case of the assessee was picked up for scrutiny assessment and the assessment was framed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) vide order dated 27.03.2014. While framing the assessment, the AO made disallowance of interest expenses by invoking the provisions of section 40A(2)(b) of the Act. Against this order, the assessee preferred an appeal before ld. CIT (A), who after 3 ITA No. 293/JP/2016 & 313/JP/2017 M/s. Trimurty Buildcon P. Ltd., Jaipur.
considering the submissions confirmed the addition. Aggrieved, the assessee is in further appeal before this Tribunal.
3. There is only one effective ground in this appeal against the addition of Rs. 28,08,245/- under section 40A(2)(b) of the Act.
3.1. The ld. Counsel for the assessee reiterated the submissions as made in the written submissions. The ld. Counsel submitted that firstly the AO was not justified in invoking the provisions of section 40A(2)(b). He submitted that the payment is not made to the Director of the company but the company itself. He drew our attention to the paper book pages 3 and 4 to demonstrate that section 40A(2)(b) is not applicable.
3.2. On the contrary, the ld. D/R supported the orders of the authorities below. 3.3. We have heard rival contentions, perused the material on record and gone through the orders of the authorities below. The AO has decided this issue in para 4.3 of his order as under :-
" 4.3. I have considered the reply of the assessee carefully and not found satisfactory. The submission of the assessee in summary is that these loans were primarily availed for upcoming projects and were for commercial expediency. It has further been submitted that due to market position all over country the assessee was not able to get funds easily and was compelled to take loans from the sister concerns. The submission of the assessee does not carry much weight. Even if it is accepted that loans were obtained for commercial expediency and it was compelled to take loans from directors due to market position it does not justify the availing of loans by the assessee from its directors and sisters concerns at a very higher rate. It is seen that during the year under consideration the assessee has shown amount of Rs.4 ITA No. 293/JP/2016 & 313/JP/2017
M/s. Trimurty Buildcon P. Ltd., Jaipur.
15,81,62,030/- as advances given and Rs. 11,56,33,384/- as loans taken. During the year under consideration the assessee has not made any business transaction. It has neither made purchase of land nor had made any sale of properlty, therefore, taking the loan during the year can not be termed as business expediency. Had there been business expediency as claimed by the assess3ee but no prudent businessman will take loans on higher interest rate and give loans on low interest rate. Therefore, it can not be said to be business prudence to avail loans at higher rate from the persons covered u/s 40A(2)(b) of the IT Act, 1961 and to give loans at lower rate to the persons again covered u/s 40A(A)(b) of the IT Act, 1961. Thus, the assessee on the one hand had received loan at higher interest rate from its sister concern and given it to other sister concern at lower interest rate. Therefore, it is clear that the assessee made payment of interest on higher side to the above person specified u/s 40A(2)(b) which is allowable to extent of 12.50% as prevailing in the market and the assessee company itself received interest on rate of 12.50%. Hence, interest calculated @ 12.50 per annum on interest paid to Shri Udai Kant Mishra and M/s. Trimurty Landcon India Pvt. Ltd. is allowed and balance interest paid to them is disallowed and added back to the total income of the assessee. This would result an addition of Rs. 28,08,245/- which is worked out as under :-
S.No. Name of the persons Amount of Rate of Amount of Disallowance to whom interest paid Interest Paid interest paid interest of interest.
allowable to the extent of 12.50%
1. M/s. Trimurty Landcon Rs.77,69,825/- 17.50% Rs.55,49,875/- Rs.22,19,950/-
India Pvt. Ltd.
2. Shri Udai Kant Mishra Rs.19,25,330/- 18.00% Rs.13,37,035/- Rs. 5,88,295/-
Total Rs.28,08,245/-
The ld. CIT (A) confirmed the same by observing as under :-5 ITA No. 293/JP/2016 & 313/JP/2017
M/s. Trimurty Buildcon P. Ltd., Jaipur.
" 3.1.2. I have duly considered assessee's submission and carefully gone through assessment order passed by the AO. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon by the assessee. In this case against net loss of Rs. 13,909/- declared in the return of income for the year, AO completed the assessment order on 27.03.2014 at a total income at Rs. 27,89,843/- after making the addition of Rs. 28,08,245/- towards interest by invoking the provision of section 40A(2) of the Act wherein AO held that the interest paid to person specified u/s 40A(2)(b) of the Act is allowable to the extent of 12.5% which is market rate. In view of this finding, AO disallowed excess of interest over 12.5% which is market rate. In view of this finding, AO disallowed excess of interest over 12.5% in following two cases and added to the total income of the assessee.
Sl Name of person to Amount of Rate of Amount of Balance
whom interest paid interest paid Interest interest Interest
allowed to the disallowed over
extent of 12.50%
12.50%
1 Udai Kant Mishra Rs. 19,25,330 18.00% Rs. 13,37,035 Rs. 5,88,295
2 M/s Trimurty Landcon Rs. 77,69,825 17.50% Rs. 55,49,875 Rs. 22,19,950
India P. Ltd
Aggrieved assessee is in appeal against the assessment order passed and relied upon following judicial pronouncements: • Gujarat Gas Financial Services Ltd (Guj) • Enviro Control Associated (P) Ltd • Ramavatar Garg (ITAT Jaipur) • Udaipur Distillery Co. Ltd (Rajasthan) • Subhash Chandra (SOT ASR) • SA Builders Ltd (C) • Bansilar Gupta (SOT ASR) • Alfa rubber Industries (ASR) • Chamba Mal Roopchand (ASR) • Hynoup Food & Oil Industries Pvt Ltd(AHD) 6 ITA No. 293/JP/2016 & 313/JP/2017 M/s. Trimurty Buildcon P. Ltd., Jaipur.
It has been repeatedly held by Hon'ble Apex Courts that the expression "for the purpose of business" is wider in scope than the expression " for the purpose of business" for earning profit. Therefore, it is required to be examined the purpose for which the assessee advanced money to its sister concerns, and what the sister concern did with the money, in order to decide whether it was for commercial expediency. But here it is pertinent to mention that in case of Addl CIT vs. M/s Tulip Star Hotels Ltd in ITA No. 43/2009, 505/2010 & 562/2010, there Judges Bench of Hon'ble Supreme Court have held as under:
"In our view, S.A. Builders Ltd. vs. Commissioner of Income-Tax (Appeals) and Another, reported in 288 ITR 1 needs reconsideration ..."
In view of Hon'ble Apex Court's observation, in this case, there is a need of the hour to clearly establish the principle of commercial expediency. But, assessee has failed establish the same before the AO and also during the appellate proceeding. Assessee's submission is not based on facts to establish its claim of commercial expediency. According, the same is examined in para below.
Here, it is pertinent to mention that Sh Udai Kant Mishra is the key person and CMD of the "the Trimurty group". M/s Trimurty Buildcon P Ltd and M/s Trimurty Landcon India P Ltd also belong to this Trimurty Group. On perusal of assessment order and submission of the assessee, it is seen that assessee is making advance to various person at interest rate of @ 12.50% whereas it is paying interest on loan taken for giving above advances @ 18% to Sh Udai Kant Mishra and @ 17.50% to M/s Trimurty Landcon India Pvt Ltd. Thus, the market rate of interest is 12.5% whereas assessee is making payments to above persons at higher rate and therefore payment of interest to above mentioned person is excessive and unreasonable. The various cases referred by the AR are distinguishable on facts as in these cases the rate of interest charged was much more than the rate of interest paid. Therefore AO has correctly, disallowed the claim of interest to Rs. 28,08,245/=. Assessee's appeal in Gr No. 1 & 2 fails."
7ITA No. 293/JP/2016 & 313/JP/2017
M/s. Trimurty Buildcon P. Ltd., Jaipur.
From the above findings of the authorities below, it is clear that both the authorities below have not commented upon as to how the company, namely, Trimurty Landcon India P. Ltd. would be covered under the provisions of section 40A(2)(b). Having seen the pattern of shareholding, we find that provisions of section 40A(2)(b) are not applicable in this case as neither the assessee company nor Trimurty Landcon India P. Ltd. falls under the list of persons specified in section 40A(2)(b), none of them hold substantial interest i.e. more than 20% of the shares in the other company. The ld. D/R has not brought any contrary material to controvert the submissions of the assessee. Therefore, after taking into consideration the totality of facts and judicial pronouncements, we are of the considered view that the reasonable rate of interest ought to have been adopted at 14% against 12.5% as adopted by the AO in view of the fact that the amount so received being unsecured loan. Moreover, the AO has not given any finding with regard to the market value of the interest which is sine qua non for making disallowance under section 40A(2)(b) of the Act. In view of the above observation, the AO is hereby directed to re- compute the disallowance. The ground of the assessee's appeal is partly allowed for statistical purposes.
4. In the result, appeal of the assessee is partly allowed.
5. Now take up the appeal in ITA No. 313/JP/2017. The grounds raised by the assessee are as under :-
" 1. In law and in facts and circumstances of the case, the CIT (A) ought to have deleted the addition made by the AO u/s 40A(2)(b) of the Income Tax Act 1961 since the payment is neither excessive nor unreasonable under the peculiar facts and circumstances of the case.
2. In law and in facts and circumstances of the case, the CIT (A) ought to have further held that since the AO having failed to bring any 8 ITA No. 293/JP/2016 & 313/JP/2017 M/s. Trimurty Buildcon P. Ltd., Jaipur.
cogent evidences to that justify that interest paid at 15% is excessive or unreasonable, the condition precedent for invoking section 40A(2) is not satisfied.
3. In law and in facts and circumstances of the case, the CIT (A) ought to appreciated from the details submitted before the AO that the interest payment commensurate with the prevailing industry norms and since 40A(2)(b) is not being a charging section, the impugned addition is contrary to the law.
4. In law and in facts and circumstances of the case, the CIT (A) has grossly erred in confirming the impugned addition of Rs. 9,63,673/- of interest paid u/s 40A(2)(b) of the Act alleging the lack of commercial expediency. The impugned addition is therefore contrary to the scope of provision of section 40A(2)(b) of the Income Tax Act, 1961.
5. In law and in facts and circumstances of the case, the CIT (A) ought to have inter alia appreciated that since the AO having examined the legitimacy of the payment of interest paid by the appellant to these parties in the past assessments, the learned CIT (A) ought to have therefore deleted the said addition.
6. The appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.
6. The effective ground raised in this appeal is against addition of Rs. 9,63,673/- under section 40A(2)(b) of the Act.
7. We have already adjudicated the identical ground in ITA No. 293/JP/2016 of the assessee for the assessment year 2011-12. Since the facts and circumstances are similar in both the cases, following the decision arrived therein, we direct the AO adopt interest rate as applied in ITA No. 293/JP/2016 and delete the addition accordingly. The AO is, therefore, directed to re-compute the disallowance accordingly.
8. In the result, appeal of the assessee is partly allowed for statistical purposes. 9 ITA No. 293/JP/2016 & 313/JP/2017
M/s. Trimurty Buildcon P. Ltd., Jaipur.
9. In totality, both the appeals are partly allowed for statistical purposes.
Order is pronounced in the open court on 29.08.2017.
Sd/- Sd/-
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( BHAGCHAND) ( KUL BHARAT )
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Jaipur
Dated:- 29/08/2017.
Das/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- M/s. Trimurty Buildcon Pvt. Ltd., Jaipur.
2. The Respondent - The ACIT Central Circle-3, Jaipur.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (ITA No. 293/JP/2016 & 313/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 10 ITA No. 293/JP/2016 & 313/JP/2017 M/s. Trimurty Buildcon P. Ltd., Jaipur.