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M/s. Ravi Ceramics Versus DCIT, Cent. Cir. 1, Baroda

2017 (1) TMI 630 - ITAT AHMEDABAD

Disallowance u/s 40A(2)(b) - assessee has paid interest to specified persons at the rate of 18% on the loan received from them - AO has disallowed interest payment over and above 12% per annum - Held that:- As decided in assessee's own case for the Asstt.Year 2005-06 to 2010-11 once there was categorical findings by the Tribunal that 18% per annum interest was reasonable and there was nothing contrary thereto such findings the CIT(A) ought to have followed the same. In view of the above discussi .....

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eal before the Tribunal against order of ld.CIT(A)- IV, Ahmedabad dated 11.11.2013 passed for the Asstt.Year 2011-12. 2. Though the assessee has taken four grounds of appeal, but its grievance in brief, is that the ld.CIT(A) has erred in confirming the disallowance of ₹ 4,88,725/-. 3. Brief fact emerges out from the record is that the assessee has paid interest to specified persons under section 40A(2)(b) of the Income Tax Act, 1961 at the rate of 18% on the loan received from them. The ld .....

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y considered rival contentions and gone though the record carefully. After perusal of the Tribunal s order dated 26.12.2016 passed for the Asstt.Year 2005-06 to 2010-11 in assessee s own case, I am of the view that disallowance made by the AO and confirmed by the ld.CIT(A) deserves to be deleted. The discussion made by the Tribunal on this issue reads as under: 4. Briefly stated the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed .....

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the prevailing market rate, based on negotiation, and it cannot be equated with loans from banks and financial institutions, because the assessee has in such a case to give equatable market and collateral securities etc. in addition to complying with various documentation requirements. It was also explained by the assessee that the recipients of the interest are any way paying the tax at the maximum marginal rates and as such there is no tax avoidance motive in making excessive payments on accou .....

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k rate is 12%. It was in this backdrop that the impugned disallowances of interest were made. 5. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A), but without any success. Ld. CIT(A) rejected the claim of the assessee that 18% per annum interest paid by the assessee is reasonable. When the assessee invited attention of the ld. CIT(A) to the decision of the Co-ordinate Bench of this Tribunal in the case of CIT vs. M/s. Navjivan Roller Flour & Pulse Mills P. Ltd in IT .....

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portionate interest expenses by applying the provisions of Section 40A(2)(b) of the Act. The assessee is not satisfied and in further appeal before us. 6. At the time of hearing, none appeared on behalf of assessee, but we have heard the ld. DR, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. We find that the question as to whether 18% per annum interest rate can be said to be reasonable came up before the Coordinate Bench o .....

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t the time of hearing it was submitted that this Tribunal, in identical circumstances, has allowed the claim of the assessee in its order dated 25-4-2008 (A.Y. 2000- 01). The Tribunal has made the following observations in the aforesaid case: 5. Having considered the rival submissions and the facts and circumstances of the case, we are of the opinion that so far as payment of interest is concerned, it is to be paid as per mutual consent of the parties and the business exigency or expediency and, .....

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ere is no illegality in accepting the loans and pay a little bit higher interest. The over all position to be seen is as to whether the assessee has earned the profit or not; i.e. whether the assessee is paying interest more than the profit or not. The fact that such loans are from close relatives and friends, in our opinion, is of no use to come to the conclusion that he should not have paid interest on such a higher rate. 6. In the present case, there is doubt that the assessee was paying inte .....

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f section 40A(2)(b) of the Act. Consequently, we do not see any infirmity in the order of the Learned CIT(Appeals), which is confirmed." 5. The material facts in the present case are similar to these involved in the aforesaid case decided by this Tribunal. In this view of the matter, ground No.1 taken by the assessee is allowed and therefore, ground No.2 taken by the assessee does not require any adjudication by us." 7. Clearly, therefore, there is a Co-ordinate Bench decision holding .....

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enders in a robust manner. Quite unlike such transactions/borrowings from individuals are much less organized and without the cumbersome requirements of documentation and collateral securities etc. In our considered view, the very action of the Assessing Officer in holding that the borrowings from the specified persons at a rate higher than the rate at which bank would lend its loans to the borrowers, would be excessive and unreasonable and the disallowance made by the Assessing Officer was, the .....

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however, held anything to the contrary of what has been decided by the Co-ordinate Bench. The question as to whether 18% interest per annum is reasonable or not is an essential question of fact. Ld. CIT(A) has been superficial in his approach in disregarding the decisions of Coordinate Bench. 9. In any event, it is not in dispute that interest is taxed in the hands of the recipients at the same rate. On this fact, and in the light of Hon ble jurisdictional High Court s judgment in the case of PW .....

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he question that still survives is whether the Revenue can tax the same income in the hands of the company on which the Directors had already paid the tax at the same rate at which the company would have been liable to be assessed. In this context, we may recall that consistently before Assessing Officer, CIT(Appeals) and Tribunal, the assessee had canvassed that all the four Directors who had received such remuneration, were taxed in the highest bracket of 30%; at the same rate at which the ass .....

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