2015 (11) TMI 736

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....law disallowing interest of Rs. 1026771/- under section 40A(2)(b), stating that reasonable interest as defined in Income Tax Act 1961 is 12% while there is no such definition in the Act, defining reasonable interest as stated in the assessment order dated 03.12.2010. The learned assessing officer allowed 12% interest on the unsecured loans taken from the friends and relatives as against 15% paid by the company. 3. Thus appellate authority has not consider the full interest amount @ 15% paid by the company to the related parties and allowed the interest @ 13.50% on deposits of the related parties. Hence appeal is partially allowed. 4. Under the facts and circumstances of the case it is submitted that the interest paid by the company @ 15% is bonafide and not excessive or unreasonable having regards to the fair market value of the facilities for which payment is made, hence this appeal. 2. Brief facts of the case are that the assessee is a company and is having income from the business of drawing and galvanizing of steel wire. During the assessment proceedings, written submissions were filed, books of accounts were produced which were examined on test check basis. It was fou....

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....ermission of bank (condition 11 at page 184 of paper book). d. That the PLR of Bank is not the yardstick to judge/measure the excessiveness or reasonableness of interest rate for private borowings which are old one. e. That interest paid to others is also @ 15% and the assessingl authority has treated them as relatives too e.g. Mr. S.S. Katta as is evident from the details of interest on record as well as enclosed herewith in paper book at page no. 751. f. That under the facts and circumstances of the case it is submitted that the interest in question is bonafide and not excessive or unreasonable having regards to the fair market value of the facilities for which payment is made. In the light of these facts it is clear that the payment of interest is duly adjudged by the department in earlier assessment u/s 143(3) as the loan accounts are old and there was no change in interest rate this year. Further the assessee client was under a bar from the bank itself as stated above hence bound to pay the interest @ 15% only. Therefore, it is submitted that the payment of interest to friends and relatives are quite reasonable and were as per business needs as....

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....this aspect of borrowing from bank at lower rate than from related parties. Considering this, 1.5% interest paid to related parties is considered disallowable as against 3% interest disallowed by the AO. Accordingly, disallowance is restricted to 1.5% of interest paid to related parties." 4. Aggrieved, the assessee is before us. 5. It is contended by the assessee before us that all the unsecured loans were taken by the assessee company in the earlier assessment years and no fresh amount was accepted by the assessee company. Besides this, it was also submitted that the assessee has taken unsecured loans from other parties not listed under section 40A(2a) of the Act. Lastly it was contended that all the unsecured loans carries 15% rate of interest and assessee is paying the same. The ld. A/R of the assessee has also taken us to the order passed by the ld. CIT (A) on 27.10.2009 for the A.Y. 2006-07 whereby the ld. CIT (A) has upheld the payment of 15%. The relevant para is as under :- "I have considered facts of the case and arguments taken by Sh. Jain quite carefully. It is a fact that all these loans from related persons were not raised during the year but these were loan t....

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....the view it had taken in the preceding assessment years, it should not have reopened the issue in the subsequent assessment year. In the case on hand also, there cannot be any avil that, strictly speaking, the principle of res judicata is applicable to income tax proceedings. Still, however, the revenue had allowed deduction of service charges from the income to assess the income tax of the respondent in the preceding year. In asbence of any material change, it could not have disallowed the claim of service charges under Section-40(A) of the Act. In the backdrop of these facts, the arguments canvassed by learned Senior Counsel Mr. M.R. Bhatt cannot be countenanced. 12 The Gujarat Gas Financial Services Limited (a Government Company), is engaged in distributing gas through pipelines to its customers, wherein the respondent company is 100% subsidiary company of the Gujarat Gas Company Ltd. It is accepted fact that the parent as well as assessee company had entered into an agreement on 25.4.2003 for various works, which are to be undertaken by the assessee company. For such works, the assessee company would be entitled for service charges and the charges agreed between the parties ....

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.... "Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle - namely, that of a setting to rest rights of litigants, applies to the case where a point, fundamental to the decision,taken or assumed by the plaintiff and traversable by the defendant, has not been tranversed. In that case also a defendant is bound by the judgment, although it maybe true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." 30 Reference was also made to Parashuram Pottery Works Co. Ltd vs ITO(1977) 106 ITR 1 (SC) and then it was held (page 329 of 193 ITR): "We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedin....