TMI Blog2014 (9) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... HARSHA DEVANI and MS. SONIA GOKANI, JJ. MR MR BHATT, SR. ADVOCATE with MRS MAUNA M BHATT, ADVOCATE for the Appellant MR SN SOPARKAR, SR. ADVOCATE with MR B S SOPARKAR, ADVOCATE for the Respondent ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. All these appeals under section 260A of the Income Tax Act, 1961 are directed against the common order dated 29th November, 2013 passed by the Income Tax Appellate Tribunal, Ahmedabad B Bench (hereinafter referred to as the Tribunal ) and hence the same were taken up for hearing together and are disposed of by this common judgment. 2. The assessment years are 2001-02, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 respectively. While framing assessment in the case of the respondent-assessee, the Assessing Officer observed that the assessee had paid interest to relatives of the partners at rates varying from 12% to 18% per annum. The assessee had made investment in Fixed Deposits in various banks and had earned interest thereon at the rate of 5 to 8% per annum. The Assessing Officer observed that the assessee had invested huge amounts in the bank in Fixed Deposits at lower rates of interest and was payin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of goods received by the assessee firm proves that it is selling premium product for which advance payment is received from the customers. (iii) The assessee firm had enough cash and bank balance for all the assessment years which is enough to service approximately one or more than one month purchase. (iv) There is no co-relation between the increase in sales and purchase of the assessee firm over seven years and huge increase in unsecured loan raised and fixed deposits made by the firm during these years. (v) The increase in different heads was also analysed as detailed in paragraph 5 of the impugned order. 3.1 It was argued that there is no analysis of the facts and the chart in the impugned order and the above submissions of the revenue has been completely missed out. Moreover, while allowing the appeal of the assessee the Tribunal has also not recorded any finding with regard to the tax slab or the tax returns of the beneficiaries nor has it recorded any finding as regards revenue neutrality of the transactions. It was urged that the Tribunal has failed to appreciate that the assessee had itself admitted receipt of borrowed funds from transporters at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable having regard to the fair market rate. It was accordingly urged that the impugned order being just, legal and proper does not warrant interference. 5. This court has considered the rival submissions advanced by the learned counsel for the respective parties and has perused the orders of assessment, the orders passed by the Commissioner (Appeals) as well as the impugned order passed by the Tribunal. 6. The facts as emerging from the record are that the assessee had made borrowings for its business purpose and paid interest at 18% on these borrowings. The assessee was required to make funds available as and when necessary and hence, the same were parked in fixed deposits which were used for business purposes. The assessee s turnover for the assessment years 2001-02, 2003-04, 2004-05, 2005-06 , 2006- 07 and 2007-08 was ₹ 168 crores, ₹ 170 crores, ₹ 167 crores, ₹ 175 crores, ₹ 186 crores and ₹ 170 crores, respectively. The assessee required huge funds for purchase of bidis and for availing such funds from banks it was required to undergo various formalities and certain documents were required to be executed over and above personal coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied persons in compared with rate on unsecured loan are more or less are same. Besides this, various formalities are required to avail the finance from the bank. It is also settled law that how the business should be carried on is the prerogative of the assessee and the Assessing Officer cannot dictate the terms as to how the business should be carried on. While considering the claim u/s 36(1)(iii) what is to be required to judge is whether the amount is borrowed for the purpose of business or not. Since the amount has been borrowed in earlier years as well as during the year at a stipulated rate of interest and which has been still utilized for the purpose of business, the interest rate could not have been renegotiated for earlier year. Therefore, rate of interest, paid by the assessee is quite reasonable having regard to the fair market value of such services. Therefore, the CIT (A) was incorrect in restricting the interest payable to the extent of 15% or 14% which is supported by various decisions mentioned in the order in preceding paras. Since the interest rate paid by the assessee is reasonable, the order of the CIT(A) is reversed and addition is deleted. Thus, assessee s ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) in his order has observed that there is no dispute that the assessee requires huge funds for the purpose of its business. For making purchases of bidi, the assessee has to make advance payments. The volume of purchases is ₹ 160 crores or more in one year. For this purpose the assessee has to borrow money from different persons. Since it is not certain as to exactly when such payment will be required to be made, and it may not be possible to secure such loans immediately when payment is required to be made, for smooth running of the business, the assessee has to borrow such funds in advance and keep the same ready at its disposal. Under the circumstances, instead of keeping such funds idle, the assessee parked the same in short term fixed deposits which in turn were used for making payment against purchase of bidis. Moreover, as noticed hereinabove, obtaining loans from banks is a cumbersome process and the interest rate is also high, hence, the assessee has obtained unsecured loans from relatives of partners at the rate of 18%. The Commissioner (Appeals) has held that to keep the funds in fixed deposits is part and parcel of the business expediency of the assessee. He h ..... 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