Case Law Details
ACIT 2(1) Vs Surajbhan Agrawal (ITAT Indore)
ITAT Indore held that rate of interest on secured loan from banks cannot be compared with the rate of interest on unsecured loan. Accordingly, disallowance of interest u/s. 40A(2)(b) of the Income Tax Act deleted.
Facts- Assessee made payment of interest to the tune of Rs. 10,99,117/-. The observation of the Assessing Officer is that such payment was made to the persons covered u/s 40A(2)(b) at the rate of 15% which is on higher side. AO worked out the figure at Rs.2,74,779/- as excessive, consequently disallowed. CIT(A) allowed the appeal. Being aggrieved, the present appeal is filed by the revenue.
Conclusion- Held that there is uncontroverted finding in the impugned order that the same rate of interest was paid by the assessee in last year and no such disallowance was made. Even otherwise, unless and until corroborative material is brought on record, it is not expected from the Assessing Officer to conclude that the interest rate of 15% was too high. At the same time, the interest rate on secured loan from banks cannot be compared with interest rate on unsecured loan. The businessman knows his interest best. The Assessing Officer is not expected to sit in the chair of the businessman and decide the reasonableness of rate of interest that too without bringing any corroborative material on record. In view of these facts, on this ground also we find no justification to interfere with the conclusion drawn by the learned CIT(A) and uphold the same.
FULL TEXT OF THE ORDER OF ITAT INDORE
The Revenue is aggrieved by the impugned order dated 13.12.2102 of the learned first appellate authority. The first ground pertains to deleting the addition of Rs. 12,57,128/- made on account of difference in stock, admitted during survey, and declared in profit and loss account.
2. During hearing of this appeal, the assertion made by Shri R.A. Verma, learned Senior DR, is in support to the assessment order by contending that there was a difference in gold stock during survey and the assessee duly admitted the same. It was contended that the assessee accepted the undisclosed income to the tune of Rs. 20 lacs on account of shortage of gold ornaments and excess of stock of silver. On the other hand, the learned counsel for the assessee, defended the impugned order.
2.1 We have considered the rival submissions and perused the material available on record. The facts, in brief, are that a survey u/s 133A of the Act was carried out at the business premises of the assessee. As per the Revenue, an amount of Rs. 20 lacs was accepted as undisclosed income by the assessee on account of shortage of gold ornaments weighing 758.475 gms and excess stock of silver at 91.134 kms. The claim of the assessee is that the assessee duly disclosed a sum of Rs.7,42,872/- by crediting it to the profit and loss account with respect to shortage in gold jewellery. The learned Assessing Officer did not accept the plea of the assessee on the ground that if the assessee was aware of transfer of stock to Abhushan Jewellers, how and why this fact was not disclosed while recording the statement during survey proceedings. The impugned addition of Rs. 12,57,128/- was, therefore, made.
2.2 On appeal before the learned CIT(A), it was claimed by the assessee that during survey physical inventory of gold and silver ornaments and also of cash was prepared by the survey party and gold ornaments weighing 1439.280 gms, silver ornaments weighing 1135.134 kms and cash amounting to Rs. 3,06,585/- were found. There is uncontroverted finding in the impugned order that the learned CIT(A) duly verified different silver accounts which were submitted by the assessee during survey and the Assessing Officer overlooked the stock of silver/silver ornaments copies of which were made available at the time of survey. The correct excess stock of silver was 7 1.295 kms valued at Rs.7,40,515/- which was offered by the assessee in its profit and loss account. We are also in agreement with the finding of the learned CIT(A) that so far as the shortage in gold ornaments is concerned, only profit embedded in the sale can be taken as income of the assessee. There is further uncontroverted finding that correct difference of income has been offered by the assessee in its profit and loss account. In view of these facts, we find no infirmity in the conclusion drawn in the impugned order. It is affirmed.
3. The next ground pertains to deleting the disallowance of Rs.2,74,779/- made on account of interest expenses. The learned Senior DR defended the assessment order whereas the learned counsel for the assessee supported the impugned order.
3.1 We have considered the rival submissions and perused the material available on record. We find that the assessee made payment of interest to the tune of Rs. 10,99,117/-. The observation of the Assessing Officer is that such payment was made to the persons covered u/s 40A(2)(b) at the rate of 15% which is on higher side. The learned Assessing Officer worked out the figure at Rs.2,74,779/- as excessive, consequently disallowed. On appeal, the learned CIT(A) considered the facts and the submissions of the assessee and concluded as under:-
“10. I have carefully gone through the assessment order and submissions of the appellant. I find that the A.O. failed to demonstrate that the borrowed funds were not used by the appellant for the purposes of his business. I do find force in the submission of the appellant that the same rate of interest of 15% was paid by the appellant in the last year and no such disallowance was made, thus, there is no reason to hold that the interest rate of 15% is too high during the year under consideration. I am convinced with the submission of the appellant that going by the definition of the term relative u/s 2(4 1), all the persons are not specified persons u/s 40A(2)(b). I find that the appellant has paid same rate of interest to specified and non specified persons which is also indicative of the market rate. I am of the considered opinion that the rate of interest on secured loans from the banks cannot be compared with the rate of interest on unsecured loans. The case of the appellant certainly finds strength from the decision in ITO vs. Chambamal Roopchand (2001) 70 TTJ(ASR) 43 and Seth Faquirchand Karwa & sons vs. CIT (1996) 135 Ta4man 126 (Chd. Tri.)”
If the observation made in the assessment order, conclusion drawn in the impugned order and the assertion made by the learned respective counsel along with the facts available on record are kept in juxtaposition and analysed, we find that there is uncontroverted finding in the impugned order that the same rate of interest was paid by the assessee in last year and no such disallowance was made. Even otherwise, unless and until corroborative material is brought on record, it is not expected from the Assessing Officer to conclude that the interest rate of 15% was too high. At the same time, the interest rate on secured loan from banks cannot be compared with interest rate on unsecured loan. The businessman knows his interest best. The Assessing Officer is not expected to sit in the chair of the businessman and decide the reasonableness of rate of interest that too without bringing any corroborative material on record. In view of these facts, on this ground also we find no justification to interfere with the conclusion drawn by the learned CIT(A) and uphold the same.
This order was pronounced in the open Court in the presence of learned counsel of both the sides at the conclusion of the hearing on 26.8.2013.
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