TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 1022
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....in upholding the addition of Rs. 21,86,197/- applying the provisions of Section 40A(2) for alleged excess interest paid on unsecured loans which is arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has failed to consider the explanations rendered and the past history in the correct perspective and as such the addition upheld is arbitrary and unjustified. 3. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 4. That the order of the Ld. Commissioner of Income Tax (Appeals) is erroneous, arbitrary, opposed to law and facts of the case and is, thus, untenable. 4. Before us, the Ld. Counsel for the assessee contended that it had repeatedly demonstrated both to the Assessing Officer (AO) and the Ld. CIT(A) that the interest rate paid by it to the specified persons @18% on unsecured loans was as per the market rate prevailing and there was therefore no cause for making any disallowance under section 40A(2)(b) of the Act. The Ld. Counsel for the assessee contended that it had been pleaded that there was no level playing field between unsecured loans taken from private persons an....
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.... the rate of interest is usually BPLR + 2 to 4% and. Such loans are granted by banks for very small amount as personal loans against security of post dated cheques and repayable in EMI. In the F.Y.2015-16 the average Benchmark Prime Lending Rate (BPLR) of State Bank of India in April,2015 was 14.60%. Thus, rate of interest for unsecured and unguaranteed loans from bank was in range of 17-19% payable monthly in EMI. A chart of BPLR is placed at page no.19-19 of the paper book . Your kind attention is invited to the fact that the Company was availing unsecured loan - Trade Advance facility from Hinduja Leyland Finance Ltd. (NBFC of Hinduja group) bearing 14.5% rate of interest with each trade advance with general repayment period of 30 days from the date of advance with interest. Copy of trade advance account received from lender company is placed at page no. 16-18 of the paper book. At the cost of repetition, it is stated that the monthly charging of interest results in compounding of interest which ultimately increases the effective rate of interest. Moreover funds are available for short period. 4.1 The Ld. Counsel for the assessee further contended in the preceding year also....
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....which otherwise would have fetch much lower interest in case the same have been deposited with the banks. Though the interest rate allowable by the banks, even on FDR's, was much lower to that of 12% but in the interest of natural justice, it would be appropriate to allow the prevalent market rate of 12% as is normally admissible. The case laws relied upon by the assessee company are not relevant to the facts and circumstances of the instant case, under reference. It is, therefore, proposed to allow the amount of interest expenses at the prevalent market rate of 12% as against the rate of interest of 18%, as claimed. The interest a12% payable on unsecured loans comes to Rs. 43,59,355/-. Therefore, the amount of excess interest of Rs. 21,76,677/- debited to P&L account is proposed to be disallowed. However, before making such disallowances, the assessee company is given an opportunity to furnish its explanation with jurisdiction thereof, supported with documentary evidence." Copy of show cause dt. 17.08.2017 is placed at page no.42-57 of the paper book . Para 4.2.5.2 appears on page 52. b) In response, the assessee company through its counsel filed its arguments backed by ....
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....nsistency has thus not been followed by the AO. It is seen that all these grounds were taken before the AO during the assessment proceedings also and the AO has duly dealt with various contentions raised by the appellant during the assessment proceedings including the case laws relied upon by the assessee. The argument about the claim that the issue was covered in the assessment order for the assessment year 2015-16 has been duly discussed by the AO in the assessment order and the conclusions of the AO are not rebutted by the AR during the appellate proceedings: The AO has also discussed the doctrine of res-judicata which is not applicable to the assessment proceedings under the Income Tax Act, as held by the Hon'ble Supreme Court. It is seen that the AO has duly discussed the legal & factual position regarding the disallowance of interest and applicability of Section 40A(2) to the facts of the case in hand. The conclusions drawn by the AO are found as per law and hence liable to be upheld. The AO has given the basis for adopting the fair market value of the interest (5)12% on unsecured loans based upon the prevailing market conditions during the period relevant to assessment y....
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....e as per law and hence liable to be upheld. At this juncture the Ld. Counsel for the assessee pointed out from the assessment order that the AO had rejected this contention of the assessee by stating that in the preceding year the issue of disallowance of interest under section 40A(2)(b) had not been examined and only the issue of identity and credit worthiness of the unsecured loans had been examined. He drew our attention to para 5 of the assessment order as under: "Moreover, the contention of assessee that the issue was covered by the assessment order for assessment year 2015-16 is erroneous because in assessment year 2015-16 the issue of unsecured loans was considered but only to enquire into the identity and creditworthiness of lenders of unsecured loans and genuineness of such loan transactions. Such enquiry was conducted to examine the applicability or otherwise of section 68 of Income Tax Act. At no point of time during the assessment proceedings for assessment year 2015-16 was section 40A(2) invoked." 4.6 The Ld. Counsel for the assessee contended that it had been clearly demonstrated ,through the records of the assessment proceedings for the preceding year, that the A....