Case Law Details
CIT Vs Shiv Agrevo Ltd. (Rajasthan High Court)
The prevailing market rates of interest for the loans of permanent nature were between 18 per cent, to 24 per cent, whereas the cases compared by AO pertained to the loans of temporary nature and that the assessee had advanced money for the purpose of business needs. Therefore, the interest was not excessive or unreasonable under section 40A(2)(b).
FULL TEXT OF THE ITAT JUDGMENT
Since in all these appeals, common questions of law and facts are involved, they are decided by this common judgment.
2. By way of these appeals, the appellants have challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeals of the assessee and dismissed the appeal of the Department modifying the order of the Commissioner (Appeals) whereby the Commissioner (Appeals) has allowed the appeals in favour of the assessee.
3. In Appeal No. 460 of 2009, originally the matter was admitted by the order dated 2-9-2009 only on one issue which was subsequently amended by us on 24-2-2017 pursuant to the application preferred by the Department which reads as under :–
“(i) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in deleting and restricting the trading additions which were made after rejecting the books of account under section 145(3) of the Act ?
(ii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in allowing the deduction under section 80-IA when the assessee does not fall in the same ?
(iii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in directing to allow the higher rate of interest to the persons specified under section 40A(2)(b) of the Act”
D.B. INCOME TAX APPEAL NO.547/2009 admitted on 07.09.2009:-
“(i) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in deleting and restricting the trading additions which were made after rejecting the books of account under section 145(3) of the Act ?
(ii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in allowing the deduction under section 80-IA when the assessee does not fall in the same ?
(iii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in directing to allow the higher rate of interest to the persons specified under section 40A(2)(b) of the Act ?”
D.B. INCOME TAX APPEAL NO.37/2010 admitted on 3.2.2011:-
“(i) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in deleting and restricting the trading additions which were made after rejecting the books of account under section 145(3) of the Act ?
(ii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in allowing the deduction under section 80-IA when the assessee does not fail in the same ?
(iii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in directing to allow the higher rate of interest to the persons specified under section 40A(2)(b) of the Act ?”
D.B. INCOME TAX APPEAL NO.72/2010 admitted on 03.02.2011:
“(i) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in allowing the deduction under section 80-IB when the assessee does not fall in the same ?”
D.B. INCOME TAX APPEAL NO.348/2011 admitted on 12.10.2011:-
“(i) Whether the Tribunal was justified in answering the issue contained in paragraphs 17 and 19 of the impugned order as grounds Mos, 1 and 2 against the Revenue (appellant herein) without assigning any reasons except to rely upon their earlier view said to have been taken by the Tribunal in respect of this very assessee for the previous year without quoting as to what was that view ?
(ii) Whether the Tribunal was justified in holding that the assessee is entitled to claim deduction of Rs. 1,29,629 by taking recourse to the provisions of section 40A(2)(b) of the Act ?
(iii) Whether the Tribunal was justified in holding that the assessee is entitled to claim benefit of deletion of Rs. 80,91,340 as required under section 80-IB of the Act ?”
D.B. INCOME TAX APPEAL NO.365/2011 admitted on 9.4.2012:-
“(i) Whether under the facts and circumstances of the case the Income Tax Appellate Tribunal is justified in confirming the order of Commissioner (Appeals) of allowing the deduction under section 80-IB of Rs. 48,29,638 which was disallowed by the assessing officer, particularly when the assessee does not fulfill the conditions laid down for claim of deduction under section 80-IB of the Act ?
(ii) Whether under the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is justified in confirming the order of Commissioner (Appeals) & deleting the addition of Rs. 3,15,647 made by the assessing officer on account of interest paid to specified persons under section 40A(2)(b) ?
(iii) Whether under the facts and circumstances of the case the Income Tax Appellate Tribunal is justified in confirming the order of Commissioner (Appeals) directing the assessing officer to allow expenses of insurance of Rs. 80,122 relating to earlier year?”
4. Counsel for the appellant has taken us to the order of the assessing officer as well as the order of the Commissioner (Appeals) and contended that the issue of section 145(3) which has been adjudicated by the assessing officer has wrongly been considered by the Commissioner (Appeals) and the Tribunal. On the question of deduction made under section 80-IA, she further contended that the benefits were not granted in view of the short fall which was made in view of the observations made by the assessing officer. Even as per section 40A(2)(b), the rate of interest which was paid to the family members was not consistent with the other persons whereas the family members were granted amount on a higher side, and therefore, the Tribunal has seriously committed an error in allowing these expenses.
5. In one of the Appeal No. 365 of 2011, additional issue is framed regarding insurance, expenses which reads as under :–
“Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal is justified in confirming the order of Commissioner (Appeals) directing the assessing officer to allow expenses of insurance of Rs. 80,122 relating to earlier year ?”
6. After considering the said issue, the assessing officer has observed in para 6 which reads as under :–
“Prepaid insurance expenses
Vide letter dated 11-12-2007, the assessee has filed the details of insurance expenses debited to the profit and loss account at Rs. 6,50,098 in response to question No. 5 dated 30-11-2007. This claim of expenditure includes a sum of Rs. 80,122 of prepaid expenses pertaining to the previous year. Further, from the assessment records of the preceding year, it is seen that while finalizing the assessment proceedings for the assessment year 2004-05, the assessing officer has not made any additions on this account. Thus, considering the accounting method of the assessee, this expenditure is not allowable in this year, hence the same is disallowed and added back to the total income of the assessee.”
7. The Tribunal while considering the observations of the Commissioner (Appeals) which is contrary to the evidence on record has observed in para 10 as under :–
“10. The fourth ground of the Revenue is as under :
On the facts and in the circumstances of the case, the learned Commissioner (Appeals), Kota has erred in deleting the disallowance of Rs. 80,122 made by the assessing officer on account of insurance expenses despite the fact that the same was not allowable considering the method of accounting followed by the assessee.”
8. Counsel for the respondent has placed reliance on the judgments in the case of CIT v. Satellite Engineering Ltd. (1978) 113 ITR 208 (Guj), CIT v. Seeyan Plywoods (19911 190 ITR 564 (Ker) and CIT v. Bhazvani Forge (P) Ltd. in Tax Appeal Nos. 1321,1326 and 1328 of 2006 decided on 1-12-2014 (Guj.)
9. We have heard the counsel for the pcirties.
10. On the first issue, in our considered opinion, in view of the observations made by the Tribunal with regard to section 145(3), unless the books of accounts which have been found not genuine and the reasons for rejecting the books of account are just and proper, the view taken by the Tribunal is required to be upheld. In that view of the matter, the issue is answered in favour of the assessee.
11. With regard to the second issue, counsel for the respondent has placed reliance on the judgment rendered in the case of CIT v. Bhazvani Forge (P) Ltd. in Tax Appeal Nos. 1321,1326 and 1328 of 2006 decided on 1-12-2014 wherein it has been observed as under :–
“In view of the aforesaid, we are of the opinion that the Tribunal has given cogent and convincing reasons in arriving at the conclusion and we are in complete agreement with the view taken by the Tribunal. The Tribunal after considering the material on record has rightly held that the assessee has satisfied all the conditions in order to avail benefit of section 80-IA of the Income Tax Act. Apart from that, learned advocate for the appellant-Revenue is not in a position to show how the findings of the Tribunal are bad in law and on facts. In that view of the matter, we do not find any error in the order of the Tribunal. Hence, the present appeals are dismissed. Accordingly, the question of law posed in these appeals is answered in favour of the assessee and against the Revenue.”
12. In view of the observations made, the second issue is also answered in favour of the assessee.
13. With regard to issue of loan which was advanced by the family members, the Tribunal has rightly observed in para 13 which reads as under :–
“13. We have heard the rival contentions and perused the facts of the case. We are convinced with the arguments of the learned Authorised Representative as to prevailing market rate for the loans of permanent in nature and long-term loans is between 18 per cent, to 24 per cent, whereas the cases compared by the assessing officer are pertaining to the loans of temporary in nature. Also the assessee has advanced the money for the purpose of business needs, is not under dispute. Therefore, in such circumstances and facts of the case, the assessing officer is not justified in considering the said payment of interest as excessive or unreasonable and the same is directed to be deleted. Thus ground No. 1 of the cross-objection of the assessee is allowed.
14. With regard to additional issue of insurance, the Tribunal has rightly observed in para 11 which reads as under :–
“11. The facts of the case are that the assessee has claimed the insurance expenses of Rs. 6,50,098 in the profit and loss account. On being asked, it is explained that the amount of Rs. 6,50,098 also includes the expenses of Rs. 80,122 of prepaid expenses pertaining to previous year. The assessing officer found from the assessment record of the preceding year that in the assessment year 2004-05, the assessing officer has not made addition on this account. Thus according to the assessing officer and considering the accounting method of the assessee, this expenditure is not allowable in this year and hence he made the addition of Rs. 80,122.”
15. In that view of the matter, all the issues are answered in favour of the assessee and against the Department.
16. The appeals stand dismissed. A copy of this order be placed in each file.
