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2016 (1) TMI 449 - ITAT AHMEDABAD

2016 (1) TMI 449 - ITAT AHMEDABAD - TMI - Disallowance on account of interest expenses u/s.40A(2)(b) - Held that:- In the case in hand, the assessee has paid the interest @18% to the related parties and 15% to unrelated parties. The contention of the assessee is that the interest paid at lesser rate was paid to the unrelated parties, in those cases, the unsecured loan was required to be paid on demand, but in the case of related parties there was no such condition. We are of the considered view .....

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aurav Nahata, AR For the Respondent : Shri Narendra Singh, Sr. DR ORDER Per Shri Kul Bharat, Judicial Member Both these appeals by the Assessee are directed against the separate orders of the Ld.Commissioner of Income Tax(Appeals)-6, Ahmedabad ['CIT(A)' in short] dated 21/05/2012 & 21/06/2011 pertaining to Assessment Years (AY) 2009-10 & 2008-09 respectively. Since both these appeals relate to same assessee, these were heard together and are being disposed of by this consolidated .....

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the disallowance of ₹ 15,29,863/- on account of business development expenses. 3. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal on or before of the final hearing of appeal. 2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 07/12/2010, thereby the Assessing Officer (AO i .....

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r in appeal before us. 3. First ground of appeal is against confirmation of disallowance of ₹ 18,77,302/- on account of interest expenditure by invoking the provisions of section 40A(2)(b) of the Act. The ld.counsel for the assessee submitted that the authorities below were not justified in making the addition and confirming the same. He submitted that the AO as well as the ld.CIT(A) are factually incorrect when they say that as there was both debit and credit in the account so the amount .....

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unsecured, whereas the loan taken from banks carry security. He submitted that such huge amount of unsecured loans is not available from banks without any security and cost of mortgage and other document charges made secured loans more cumbersome. The ld.counsel for the assessee submitted that the normal rates interest charged by the NBFC were around 20 to 22% during that period for unsecured loans. He submitted that the payees were assessed to tax at the highest rate. Therefore, the authorities .....

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ctively which is a very old period and interest rates of that period cannot be compared with the rates of AY 2009-10. The ld.counsel for the assessee placed reliance on the decision of Aflon Alplast Pvt.Ltd. vs. ITO (ITAT "D" Bench Ahmedabad)in ITA No.1186/Ahd/2012 for AY 2008-09, dated 30/01/2015. He relied on the decision of the Coordinate Bench (ITAT "B" Bench Ahmedabad) in the case of ACIT vs. Sh.Laxmi Bidi Trading Co. in ITA Nos.414 to 417 & 1952/Ahd/2009 & 2461/ .....

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thkline Asia (P) Ltd. reported at (2010) 236 CTR (SC) 113. He further relied on the judgement of Hon'ble High Court of Gujarat in the case of CIT vs. Laxmi Bidi Trading Co. in Tax Appeal Nos. 851 to 856 of 2014, dated 01/09/2014. 3.1. On the other hand, the ld.Sr.DR opposed the submissions of the assessee and submitted that the assessee has not demonstrated as to how the rate of interest paid is reasonable as also not demonstrated the commercial expediency for such unsecured loans at a highe .....

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ble having regard to the fair market value, he can disallow such expenditure. Therefore, the issue to be examined whether the payments are unreasonable or not. The AO made disallowance on the basis that the assessee itself has paid lesser interest to the unrelated parties @15%, whereas in the case of related parties, the assessee has made payment of 18%. Therefore, the AO disallowed the expenditure to the extent of 3% and the same was confirmed by the ld.CIT(A) holding that the interest was exce .....

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e find that the authorities below have not doubted the fact that the unsecured loan was taken for business purpose. The only dispute with regard to the rate on which the interest was paid. In the case of Affon Alplast Pvt.Ltd. vs. ITO in ITA No.1186/Ahd/2012(supra), the Coordinate Bench deleted the disallowance of interest expenditure. In that case, the interest was paid @24% to the related parties. The assessee has further relied on the decision of the Coordinate Bench in ITA Nos.414 to 417 &am .....

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Court upheld the finding of the Tribunal, wherein the payment to Sun Pharmaceuticals Industries Ltd. @24% p.a. was treated to be reasonable. Reliance is also placed on the decision of the Coordinate Bench in the case of ACIT vs. Saumya Construction Pvt.Ltd.(supra), in that case, the interest paid @36% was held to be reasonable. The ld.counsel for the assessee has placed reliance on the decision of the Coordinate Bench (ITAT "B" Bench Ahmedabad) in the case of ITO vs. Ambica Ginning &am .....

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not be applicable on the facts of the present case as in that case, the companies were not related parties. Reliance is placed by the ld.counsel for the assessee on the judgement of the Hon'ble Jurisdictional High Court in the case of CIT vs. Laxmi Bidi Trading Co. in Tax Appeal Nos.851 to 856 of 2014(supra), wherein the Hon'ble High Court of Gujarat confirmed the finding of the Tribunal that the interest paid @18% is reasonable. In the case in hand, the assessee has paid the interest @1 .....

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ground No.1 of the Assessee's appeal is allowed. 5. Ground No.2 is against confirming the disallowance of ₹ 15,29,863/- made on account of business development expenses. The ld.Sr.DR pointed out the facts that a similar disallowance was made by the AO in the AY 2006-07 and the matter travelled upto the stage of Coordinate Bench (ITAT "B" Bench Ahmedabad) by way of ITA No.3235/Ahd/2010 (in assessee's own case), wherein the Tribunal vide its order dated 23/08/2013 has confi .....

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f Revenue in para-14 of its order dated 08/07/2013 by observing as under:- "14. We have heard the rival contentions and perused the materials on record. The assessee incurred the expenses on training of Mr. Aditya Agarwal, son of the director of the assessee company. The assessee had only argued the case on the basis of legal aspect but details of business development account shows that the assessee had paid fees of UK University of Sounthamtion, traveling expenses and credit card expenses. .....

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Court in the case of Silicon (India) Ltd. Vs DCIT (Mad), 295 ITR 422, the Hon'ble Bombay High Court in the case of Echjay Forgings Ltd. Vs ACIT (Bom), 328 ITR 286 and the Hon'ble Delhi High Court in the case of Enkay (India) Rubber Co. Pvt. Ltd. Vs CIT(Del), 263 1TR 521 held that education expenses of a son of the director was incurred for personal gain and not for the business purpose. Keeping in view of the factual position as well as legal position on this issue, we uphold the order .....

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