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TMI Blog2013 (10) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. CIT Appeals has erred in law and on facts in justified the issuing notice u/s 147 and reopening the case after four years from the end of the assessment year where the original assessment was done u/s 143(3). 3. The Ld. CIT (A) has erred in law and on facts in the case of appellant by confirming disallowance of Rs.43,05,343/- on account of interest expenses u/s.40A(2)(b) of the Act. ITA No. 2159/Ahd/2011 (A.Y. 05-06) "1. The Ld. CIT Appeals VI Ahmedabad has erred in law and on facts in passing appellate order dated 17/06/2011 for A.Y. 2005-06 in the case of appellant by holding that the A.O. was justified in issuing notice u/s 148 for reopening the assessment. It is respectfully stated that it is nothing but a change of opinion. 2. The Ld. CIT (A) has erred in law and on facts in the case of appellant by confirming disallowance of Rs.16,35,620/- on account of interest expenses u/s.40A(2)(b). ITA No. 2160/Ahd/2011 (A.Y. 08-09) "1. The Ld. CIT Appeals VI Ahmedabad has erred in law and on facts in passing appellate order dated 20/06/2011 for A.Y. 2008-09 in the case of appellant by confirming disallowance of Rs.28,42,507/- on account of interest expenses u/s.40A(2)(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid at the rate of 24% as against 15% paid to unrelated parties. It is therefore seen that excess interest has been paid to related parties which is liable to be disallowed u/s. 40A(2)(b) of the I.T. Act. From the records, it is further seen that in this manner; income has been under assessed to the tune of Rs.43,05,343/-, adopting 9% as the excess interest paid to the related parties." After recording the reasons, the A.O. issued notice u/s. 148 on 30.03.2010. The reasons recorded by the A.O. were provided to the assessee vide letter dated 03.08.2010. The assessee further filed its objections on the issue of notice and reasons recorded for reopening. The same were disposed of vide order dated 15/12/2010 passed in accordance with the decision of the Hon'ble Supreme Court in case of G.K.N. Driveshafts (India) Ltd. vs. ITO & Others 259 ITR 19 (SC). The assessee's objection against issue of notice u/s. 148 was considered by the A.O., which was not found tenable to him. Similarly, in A.Y. 05-06, the return of the income was filed on 31.10.2005, declaring total income at Rs. 5,00,96,990/-. Thereafter assessment u/s. 143(3) was completed on 29.06.2007 determining total income at Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer reopened the assessment on the ground that appellant paid excess interest @ 24% to the related parties where as interest to outsiders is paid @ 15%. All the objections of the appellant have been dealt with by the assessing officer in his order. It is wrong on the part of appellant to claim that in original assessment, assessing officer considered this issue and it is mere change of opinion. There is no discussion in the order or assessment record about excessive claim of interest. Therefore it cannot be said that after considering the issue assessing officer held the interest payment reasonable. As regards non-disclosure of material facts it is seen that appellant only disclosed payment made to specified persons in tax audit report. The rate of interest to related parties or payment of interest along with the rate of interest to outside parties is not mentioned. It is only during subsequent assessments this excess claim of interest to related parties is noticed and accordingly additions were made in those years, assessing officer came to know of this excessive payment of interest to relatives. Appellant has not disclosed this material fact that it was paying relatives 24% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. A.O. issued notice beyond four years from the relevant assessment year and as reopening was made by the A.O. on 30.03.2010. The assessee has drawn our attention on page nos. 11 & 12 on item nos. 3,4, 20 & 24 of letter dated 20.12.2004 issued by the A.O. by which all the details had been asked by him. The appellant had submitted reply to the A.O. and copy of the letter enclosed at serial nos. 14 & 15 (date not mentioned) in item no. 3, the assessee had furnished the complete address, PAN, rate of interest as well as other information required by the A.O. in form of confirmation. The reasonableness of the interest had been explained in item no. 17 of this letter. Therefore, there is no failure on the part of the assessee to disclose fully and truly all materials necessary for assessment. Similarly he argued for A.Y 05- 06, where re-opening was within four years. He has drawn our attention on page no. 7 on item no.6 of paper book, which was detailed questionnaire letter of A.O. and interest showing rate of interest by furnishing detail interest account. The appellant replied to the A.O. and copy of letter is enclosed at page nos. 9 to 11 of the paper book. He has drawn our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 43,05,343/- 2 05-06 Rs. 16,35,620/- 3 08-09 Rs. 28,42,507/- 4 09-10 Rs. 87,09,674/- The assessee claimed interest in above years as under: Sl. No. A.Y. Interest paid Rate of interest to the related party Rate of interest to the outside party 1 03-04 Rs. 1,14,80,914/- 24% 15% 2 05-06 Rs. 98,13,720/- 18% 15% 3 08-09 Rs. 2,28,07,061/- 18% 15% 4 09-10 Rs. 78,47,467/- 22% 15% The A.O. gave reasonable opportunity of being heard on excessive interest paid to the related party in all years, which was responded by the assessee during the course of assessment proceeding in all the years. The argument of the appellant was that loans taken from the related parties were outstanding for long time, have extended without any security and are not re-payable on demand. This contention of the assessee was not found convincing to the A.O. on the ground that all the unsecured loans from the outside party were against without any security. The borrowing was for long time did not justify to pay higher rate to the related party. There was no agreement between related party and appellant regarding paid higher rate of interest. The assessee's argument was that the Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are as under- 1- MADANLAL RADHESHYAM V. INCOME-TAX OFFICER, 80, TAXMAN 338 (INDORE) ITAT INDORE BENCH 2- Coronation Flour Mills v.Assistant Commissioner of Income-tax [2010], 88 TAXMAN 257 (GUJ.) HIGH COURT OF GUJARAT 3- AnandjiShah v.Commissioner of Income-tax [1990] 51 TAXMAN 29 Kerala. Considering the aforesaid decisions, it is clear that interest paid to relatives in excess of interest paid to outsiders is excessive and unreasonable and the same is disallowable. Facts of the appellant's case are identical to the facts of the case decided by honorable ITAT Indore bench. In that case also appellant claimed that funds borrowed from relatives were large and for long period which was not found acceptable by the tribunal and the disallowance of excess interest was confirmed. Decisions of honorable Gujarat High Court and Kerala High Court are also supporting the assessing officer's action of disallowing excess interest paid to relatives. Respectfully following these decisions in the light of facts of the appellant, the disallowance of interest made by the assessing officer is confirmed." The identical findings were given in other years also by the ld. CIT(A). In A.Y. 09-10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the various Courts that payment of interest rate depends on various factors, particularly, institutional borrowing with security whereas outside borrowing without security which carries more interest rate. There is no thumb rule of allowability of interest rate. It depends upon case to case and business expediency. Therefore, we confirm 20% rate reasonable for A.Y 09-10 for the related parties. Thus, the A.O. is directed to calculate difference @ 2% and revise the income and tax accordingly. As in A.Y. 05-06 and in A.Y. 08-09, the assessee paid interest @ 18% which is reasonable. Therefore, we do not interfere on the basis of finding given in A.Y. 09-10. We make it clear that we have decided the issue in the light of peculiar facts and circumstances of the case and it shall not became Precedent for all cases. In this case, since company and the depositors were assessed at highest tax rate and no loss of revenue. Deposit from outside parties is very meager as compared to related party and also business turn over and profit have increased substantially and there is no finding of lower authorities that the amount of loan received from loan creditors were not used for business pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition. After considering the facts of the case and nature of the assets, it is found that without storage tank, the pollution plant cannot be run. It is part and parcel of the pollution plant. The Auditor had certified these assets as allowable depreciation @ 100%. Further, ld. A.O. allowed the 100% depreciation on remaining pollution plant. Thus, we reverse the order of the CIT(A) and allow the assessee's appeal. REVENUE'S APPEALS 13. Ground no.1 of Revenue's appeals in A.Y. 05-06 & 09-10 are against deleting the addition made on account of unutilized CENVAT credit not included in the closing stock. The A.O. in A.Y. 05-06 found that the assessee had not made adjustment u/s. 145A of the IT Act. He relied upon CIT vs. British Paints India Ltd. (1991) 188 ITR 44 (SC), wherein it was held that closing stock of goods-in-process or finished goods, all overhead expenses, besides the cost of raw material, had to be added in the closing stock for determining the correct income. As per Section 145A of the IT Act, this should be added in the closing stock. Thus, he made addition of Rs.33,83,950/- in the income of the assessee in A.Y. 05-06. Similarly, addition of Rs.2,08,94,571/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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