TaxTMI 
TaxTMI 
2021 (9) TMI 756
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....lowing grounds of appeal: "1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition without any reference to incriminating material of cash purchase (Annexure-2) seized during the search action u/s 132 of the I.T. Act, 1961? 2. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing books of accounts in spite of the facts the assessee failed to furnish any evidence of bills of entry to determined whether the plant and machinery and other items for the year under consideration were actually received at any part of India and were being used for business purposes? 3. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing deduction u/s 35AD of the Act in spite of the fact the assessee has not furnished the report in Form No. 10CCB alongwith return of income which is mandated as per Rule 12(2) of the Income Tax Rules, 1962? 4. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing deduction u/s 35AD of the Act in spite of the fact the ass....
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....ppeal raised by the Revenue relates to challenging the order of the ld. CIT(A) in deleting the addition without any reference to incriminating material of cash purchase (Annexure-2) seized during the search action u/s 132 of the Act. In this regard, the ld CIT-DR has vehemently supported the order of the A.O. 8. On the other hand, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the submissions made qua this issue are as under: "No incriminating material was found in search. The Ld. A.O. in assessment order gave finding that during the course of search, evidences in respect of 'out-of-books' purchases/expenses, in the form of Annexure-A-2 seized from business premises of the assessee are not verifiable. The assessee has not only failed to justified the expenses recorded in these seized documents but was unable to prove the genuineness of the parties mentioned therein. In this connection it is submitted that papers seized from assessee company being ann. A-2 are only bills of bricks purchased from local unregistered dealers for use in ....
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.... extracts: Para 58 of SB decisions: Thus, question No. 1 before us is answered as under: (a) In assessments that are abated, the A.O. retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately (b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account , other documents, found in the course of search but not produced in the course of original assessment, and (ii) Undisclosed income or property discovered in the course of search. CIT vs Kabul Chawla Delhi High reported in (2016) 380 ITR 5733 (Delhi) vide ITA Nos. 707/2014 and others, dated 28.8.2015, (SLP dismissed by Hon'ble Supreme Court on 7-12-2015) wherein the Hon'ble Delhi High Court has reiterated the above settled legal proposition that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed .................... Rajasthan High C....
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.... para 7 to 7.5 of his order and for sake of convenience, the said findings are reproduced herein below:- "7. I have perused the order of the AO and submissions made in this regard. Perusal of assessment order passed u/s 143(3)/153A shows that the additions made by the AO are not relatable to any seized material. I also find that for the A.Yr the assessments stood completed on the date of search. Further there was no time to issue notice u/s 143(2) for the instant A.Yr. Following information are taken from the assessment order u/s 143(3)/153A may be refereed to. A.Y. ROI Filling date 143(2) notice time expiry Date of Search 2010-11 30-09-2011 30-09-2012 15-10-2014 2011-12 29-09-2012 30-09-2013 15-10-2014 2012-13 30-09-2013 30-09-2014 15-10-2014 7.2 It is clear from the table above that assessments stood completed on the date of search and there was no time left to issue the notice u/s 143(2). Careful perusal of the assessment orders indicated that none of the additions/disallowances (except Ground of Appeal 4 in A.Y. 2011-12) made are based on seized material found during the course of search on the appellant premises....
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....completed assessment con be reiterated and the abated assessment or 13 D.B. INCOME TAX APPEAL NO.53/2011 Jai Steel (India), Jodhpur vs. Assistant Commissioner of Income Tax, Jodhpur (Along with other 16 similar matters) reassessment can be made." Similar view point was expressed by the Hon'ble Delhi High Court in the case of Kabul Chawla vs. ACIT 380 ITR 573 (Del HC). The relevant observation of Hon'ble court could be seen in para 37 & 38 of order. Summary of the legal position 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light o/ the law exploited in the aforementioned decisions, the legal position that emerges is as under.' i Once a search takes place under Section 132 o] the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date o/ the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO....
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.... Vikram Goyal Vs DCIT ITA 174/Jaipur/2017 etc. f) Jadau Jewellers & Manufacturer PL Vs ACIT (686/Jaipur/2014) g) Prateek Kothari Vs ACIT (312/Jaipur/2015) 7.5 Considering the above, I am of the view that as the additions made by the A.O. are without any reference to the seized material, they are not legally tenable. The legal ground taken by the appellant is thus allowed." 10. We have observed from perusal of the record that the A.O. passed assessment order u/s 143(3)/153A of the Act shows that the additions made by the AO were not relatable to any seized material. We find that for the A.Yr the assessments stood completed on the date of search. Further there was no time to issue notice u/s 143(2) of the Act for the instant A.Yr. Following information which came from assessment order is necessary to mention here, which is as under: A.Y. ROI Filling date 143(2) notice time expiry Date of Search 2010-11 30-09-2011 30-09-2012 15-10-2014 2011-12 29-09-2012 30-09-2013 15-10-2014 2012-13 30-09-2013 30-09-2014 15-10-2014 It is clear from the table above that those assessments stood completed on the date of sea....
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....egarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and (c) In absence of any incriminating material, the completed assessment con be reiterated and the abated assessment or 13 D.B. INCOME TAX APPEAL NO.53/2011 Jai Steel (India), Jodhpur vs. Assistant Commissioner of Income Tax, Jodhpur (Along with other 16 similar matters) reassessment can be made." 12. We also draw strength from the decision of the Hon'ble Delhi High Court as relied by the ld. CIT(A) in his order, in the case of Kabul Chawla vs. ACIT 380 ITR 573 (Del HC), wherein it was held as under: 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light o/ the law exploited in the aforementioned decisions, the legal position that emerges is as under.' i Once a search takes place under Section 132 o] the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and r....
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....made in cash which too was not in violation of section 40A(3) of the Act and those payments for purchase are duly recorded in regular books of accounts which is verifiable therefrom. The soft copy of books of accounts were also available before A.O. in assessment proceedings and copy of books of account showing the said entries were filled in paper book in appeal proceedings which was also forwarded to A.O. in the remand proceedings. The A.O. has not made any comment therefor and repeated what is stated in assessment order. No document/loose paper was found/seized during the course of search at the business/residential premises of the assessee indicating any on money receipt/investment/advances made and any unexplained/overstated expenditure etc. in its books of account pertaining to the year under appeal, therefore, we are of the view that the mode and manner of the additions made in the orders passed u/s 153A deserves to be held bad in law. The ld. CIT(A) has passed a well-reasoned order discussing all material facts and legal position. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. C....
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.... (b) As regards to claim made u/s 35AD it is supported with fixed asset chart in audited accounts. A few CIF import bills and capital expenses bills were produced before A.O. and it was not practical to produce all voluminous construction bills/vouchers for this year as well as construction bills/vouchers of earlier year within allowed time before Ld. A.O. in its office and so in letter dated 29-12-2016 it made a request to A.O. for verification of bills at business premises of assessee if so required which is not attended to by A.O. The assessee however, produced bills of CIF imports and other bills before Ld. CIT(A) and Ld. AO in response to remand report. The Ld. A.O. is thus wrong and has erred in law in invoking provisions of section 145 (3) thereby rejecting audited books of accounts in a very casual manner, on filmsy grounds in an arbitrary manner. The Ld. A.O. having not found any defect or discrepancy in books of accounts is not correct in law to reject books of accounts. The A.O. has not pointed out any specific mistake or deficiency in the books of accounts maintained and produced by the assessee. The correctness of the book results cannot be challenged witho....
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....,59,200/- (separately adjudicated in ground no.4) is seen to be duly incorporated in the cash book & also not adversely commented by the AO/auditor. The action of Ld. AO is not backed by any factual defect in the books of bills, vouchers or the audit report. The action of Ld. AO in rejecting books is highly arbitrary and same is rejected. The Ld. AO is directed to accept the books of accounts maintained by the appellant for the stated A.Yrs. The ground is allowed." 16. We also observed from perusal of the record that the A.O. has not mentioned the fact that books of accounts were provided to him in the electronic form on 29-12-2016. More so that audit report with requisite performa was also provided to him. The AO's requisition of all the bills and vouchers was not feasible seeing the qty. of bills and vouchers and also that such requisition was made on the fag end of the time barring date. These books and entire bills etc. were provided in the remand proceedings to the AO. In the remand proceedings the AO has not pointed a single defect in the books, bills or vouchers or the audit reports (both internal and external audit). In the remand proceedings the CIF bill, which were not....
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....r in assessment disallowed the said claim of deduction u/s 35AD on following grounds. (a) The assessee company is not an eligible entity as it did not furnish report in prescribed form (i.e. Form 10 CCB) duly signed, verified by the accountant alongwith return of income as required under provisions of section 35AD (7) r/w section 80IA (7) but furnished said report in assessment proceedings. (b) That the condition of building operating anywhere in India a Hotel of 2 star or above category as classified by the Central Govt. is not satisfied as it applied for catagorisation of the Hotel in A.Y. 2014-15 and certificate is issued on 31-3-2016 by competent authority showing commencement of operation of Hotel 1-4-2011 while assessee declared it 26-3-2011 in Form 10CCB. (c) That in the year under consideration it declared nominal income from operation and therefore it seems it is totally an entry to show commencement of operations and further in A.Y. 2011-12 it has capital expenditure/investment at Rs. 13,86,30,120/- while in A.Y. 2012-13 such investment is Rs. 73,22,98,854/- so it is not practical that hotel of 2 star and above can commence in A.Y. 2011-12 when ....
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.... was not filed alongwith return. (b) The assessee in order to avail the benefit of section 35AD of the Act has to fulfill the conditions being (i) expenditure incurred prior to commencement of its operation and (ii) the amount is capitalized in the books of accounts of the assessee on the date of its operation. There is no procedure to issue the star rating certificate from the date of application retrospectively and is issued on and from the date of signing of the certificate but it also does not mean that the hotel was operated for lower than two star category from the date of application till the issuance of three-star rated certificate. Naturally, in order to get the certificate, the assessee has designed the hotel rooms and all other amenities according to the terms and conditions specified for three-star hotel. As per provisions of section 35AD, the expenditure incurred wholly and exclusively for the purpose of any specified business shall be allowed as deduction during the previous year in which he commences operations. The admitted fact is that assessee got the certification of categorization for above 2 star category from competent authority. The commence....
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.... order and from statement prepared from audited accounts submitted herewith. It is also submitted that in case of deduction u/s 35AD is allowed then on that capital expenditure no deduction of depreciation u/s 32 is admissible and on remaining capital expenditure depreciation at prescribed rates u/s 32 is admissible. In case assessee do not avail or obtain deduction u/s 35AD then assessee is entitled to depreciation on said capital expenditure u/s 32. The assessee thus prays that in case it do not succeed in his claim for allowance of deduction u/s 35AD, the assessee may kindly be held entitled to depreciation on such capital expenditure at prescribed rates and same may kindly be allowed to it." 19. We have considered the rival contentions of both the parties and perused the material placed on record. The ld. CIT(A) has dealt with the issue in para No. 17 & 18 of his order and the same is reproduced below: "17. I have perused the written submissions submitted by the Ld. A/R and the other of AO. I have also gone through various judgements cited by the Ld. A/R and those contained in the order of AO. I find the Ld. AO has disallowed claim u/s 35AD citing ....
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....ts squarely applied on the appellant. The head note of the first judgement reads as under: Section 35AD of the Income-tax Act, 1961 - Specified business, deduction in respect of expenditure on (Hotels) - Assessment year 2011-12 - For relevant year assessee filed its return claiming deduction under section 35AD(5)(aa) - Assessing Officer, while completing assessment under section 143(3), denied benefit on ground that" assessee had obtained classification as a three star category hotel only during next assessment year - Tribunal noted that revenue had not disputed operation of new hotel from relevant financial year 2010-11, as it had accepted income which was offered to tax - It was also found that assessee had filed application for classification of hotel in three star category in assessment year in question itself and, thereupon, manner in which inspection was conducted and time frame taken by Competent Authority were all beyond control of assessee - Tribunal thus taking a view that holistic interpretation of provisions of section 35AD was to be made, allowed assessee's claim - Whether since revenue failed to controvert aforesaid findings of fact, impugned order passed....
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....on given by the Tribunal considering the facts of the case is perfectly valid and justified. For the above reasons, we find no grounds to interfere with the order passed by the Tribunal. In the 2" judgment, ACIT Vs. Riverview Hotels (2018) 94 taxmann.com 433 too the head note may be referred too. Same reads as under: Section 35AD of the Income-tax Act, 1961 - Specified business, deduction of expenditure in respect of (Hotel) - Assessment year 2012-13 - Whether for avoiding benefit of a three star hotel under section 35AD, what is not relevant is date of certification for classification as two or more star hotel but existence of classification as two or more star hotel; therefore, once assessee engaged in hotel business, was granted certification for categorization of its hotel as three star hotel, entire capital expenditure incurred by assessee in respect of its hotel was to be allowed for deduction under section 35AD - Held, yes [Para 10] [In favour of assessee) Thus the case of appellant is squarely covered by the aforesaid two judgments. That the aspect of not furnishing of from 10CCB with the return is a bonafide error, as is submitted by the....
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....ellant. Other than the technical objection by the Ld. AO there is nothing in the assessment order which would entail the Ld. AO to deny the claim of deduction u/s 35AD. That being so the Ld. AO is directed to allow the claim the deduction u/s 35AD. At the cost of repetition it may be pointed out that this disallowance is NOT based on any incriminating seized material found during the course of search on appellant. Considering the above and on the facts and in the circumstances of the case, the Ld. AO is directed to allow the claim of appellant u/s 35AD of the Act. The ground is allowed." 20. From perusal of the record, we observed that the AO has disallowed claim u/s 35AD of the Act citing following reasons: 1. That the appellant company did not file 10CCB report alongwith the return of income. 2. That the approval for star categorization as obtained on 31-3-2016 while the appellant company declared it on 26-03-2011. 3. That the appellant company declared notional income for business operations. 4. That the appellant company fail to furnish CIF import bills of Rs. 9.18 crores while also there is difference of CIF import figure of Rs. 8.68 cror....
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.... 22. On the contrary, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents qua this issue is reproduced as under: "The assessee company has capitalized interest on term loan from Bank of Rs. 4,25,88,123/-. The Ld. A.O. asked to assessee to furnish its details and assessee submitted the copy account of term loan from Bank which stated to show interest detail of Rs. 3,63,51,274/- hence Ld. A.O. disallowed the alleged difference of Rs. 62,31,856/- invoking section 43B. In this connection we submit the detail of interest paid on term loan and copy of A/c of term loan and Bank statement of term loan evidencing payment of interest of Rs. 4,25,88,123/-. The Ld. A.O. is thus wrongly arrived at the difference of Rs. 62,31,856/- and disallowed the same u/s 43B which is wrong in law. Without prejudice the above section 43B can be invoked if expenses for which deduction is claimed under chapter - IV while computation of business income and not otherwise. In the case of assessee the expenses have been capitalized and carried forw....
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....ertain incriminating documents were found from the business premises (i.e. Hotel Royal Orchid, Durgapura, Jaipur) of the assessee which were inventoried as per Annexure-A2. These papers were regarding purchase of certain material in cash of Rs. 859200/- from M/s Bhagwati Building Material Supplier and Shreeji Hardware Building Material Suppliers without any proper address and Tin. In this regard assessee was show caused to furnish the address and PAN of above parties so that its genuineness can be examined. In the reply furnished by the assessee no required details were provided. Therefore, it is clear that said expenses have been made out of books hence addition of Rs. 859200/- is being made u/s 69C of the I. T. Act, 1961 to the total income of the assessee. In this connection it is submitted that the above Ann.A-2 seized in course of search are only bills of brick purchased from unregistered dealers for use in construction of hotels and are recorded in books of accounts of Assessee Company. The books of accounts and copy of relevant A/c of purchases are produced herewith for verification. The full address of those unregistered suppliers are available on seized bills itself but be....
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....nt which is not in violation of provision of section 40A(3) and its source is verifiable therefrom and in this case expenditure is duly recorded in books of accounts and source of cash payment is clearly depicted in books of accounts being out of withdrawal of cash from Bank A/c(s) of assessee company. Since, the ld. CIT(A) has deleted this addition on the ground that the expenses are duly recorded in the books of accounts which have been verified by the auditor with no adverse remark in the report by the auditor. There is no adverse verification in the remand proceedings too by the AO. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see no reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) qua this issue and we uphold the same. 29. In the result, this appeal of the Revenue stands dismissed. 30. Now we take ITA No. 1159/JP/2019 for the A.Y. 2012-13, wherein the Revenue has taken following grounds of appeal: "1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the....
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....r during the hearing of this appeal." 31. In this appeal, grounds No. 1 to 5 of appeal, facts and submissions of both the parties are identical to the facts and submissions of ITA No. 1158/JP/2019 for the A.Y. 2011-12, therefore, our findings given in ITA No. 1158/JP/2019 for the A.Y. 2011-12 shall apply mutatis mutandis in this appeal also. 32. Ground No. 6 of the appeal raised by the Revenue relates to challenging the order of the ld. CIT(A) in deleting the addition of Rs. 5719/- made u/s 36(1)(va) of the Act (i.e. PF/ESI addition) relying on the ratio of CIT Vs SBBJ 265 CTR 471 which is sub judice as SLP has been admitted by the Hon'ble Apex Court. In this regard, the ld CIT-DR has vehemently supported the order of the A.O. 33. The ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same qua the issue under consideration are as under: "As regards to ESI & PF payment of Rs. 5,719/- the Ld. A.O. with reference to 3CD audit report has stated that the same has been made after due date. However from the said audit re....
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....I and PF u/s 36(1)(va) r.w.s. 2(24)(x) of the Act. AO has noted that payments have been deposited after few days of the due dates of the said act and therefore no deduction could be claimed under the provisions. 32.2 The appellant has stated that all the payments on account of ESI and PF have been made before the due date of filing of return of income and therefore no disallowance could be made on this account. APB pages 18 and 19 can be seen. Further, reliance has been placed on the decisions of the Hon'ble Rajasthan High Court in the case of CIT, Udaipur Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd (2013) 35 taxmann.com 616 and also in the case of CIT vs. State Bank of Bikaner and Jaipur 265 CTR 471. 32.3 In view of the above discussions, I find that it is not disputed that the payments on account of ESU and PF have not been deposited by the appellant. Further, in view of the above judgments of the Hon'ble Supreme Court which has been subsequently followed by the jurisdictional High Court, I find that there is no justification in the action of the AO in making a disallowance on account of delay in deposition of ESI and PF. On the facts and in the circumstances o....
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....d. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same qua the issue under consideration are as under: "The Ld. A.O. held that "the total receipts of the assessee as per 26AS are of Rs. 1,68,51,674/- , for which TDS has been deducted u/s 194A, 194C, 194I and 194J of the Act. Whereas assessee has shown the other source income at Rs. 27,28,256/- only and TDS has been claimed at Rs. 10,48,661/-. In this regard vide show cause notice dated 23.12.2016 assessee was asked to state its case but no suitable reply was furnished by the assessee as no such reconciliation of TDS claimed and receipts shown was furnished during the course of assessment proceedings. In view of the above, facts, it is clear that income to the extent of Rs. 1,41,26,418/- (i.e. 1,68,51,674/- minus 27,25,256/-) has not been shown by the assessee in the relevant Return of Income. Therefore, receipts of Rs. 1,41,26,418/- is treated as other source income and added to the total income of the assessee." In this connection it is submitted that Ld....
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....ings too. In absence of any factual rebuttal the stand taken by the Ld. AO does not stand. Similar explanation was offered for AY. 2013-14 too. Since the difference as pointed out by the Ld. AO is duly explained with evidences and no adverse comments in remand report the Ld AO is directed to delete the addition of Rs. 14126148 and Rs. 36158358 an income from other sources." 39. From perusal of the impugned order, we noticed that the ld. CIT(A) had given relief to the assessee on the ground that the AO has misconstrued the revenue receipt as income. The assessee had received Rs. 1,68,51,674/- as gross revenue receipt from various operations. Out of which Rs. 27,28,256/- are shown as income from other sources wherein TDS was claimed for Rs. 10,48,661/-. The AO concluded that Rs. 1,68,51,674 - Rs. 27,28,256/- is the income not disclosed and added the same. The TDS is for various services rendered to corporate clients for room clients for room service, laundry, guest transportation etc. thus out of the total revenue of Rs. 9,87,22,256/- only, Rs. 1,68,51,674/- was subjected to TDS. Thus Rs. 1,68,51,674/- is not income from other sources. Necessary evidence like 26AS forms with TDS r....
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....rcumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 6,01,811/- made u/s 36(1)(va) of the Act (i.e. PF/ESI addition) relying on the ratio of CIT Vs SBBJ 265 CTR 471 which is sub judice as SLP has been admitted by the Hon'ble Apex Court? 7. Whether on the cats and in the circumstances of the case in law the Ld. CIT(A) has erred in deleting the addition of Rs. 3,61,58,258/- made under the income from other sources without determining the fact whether the receipt shown in form no. 26AS has been duly accounted for under the head 'revenue from operation'? 8. The Appellant crave, leave or reserving the right to amend modify, alter add or forego any grounds of appeal at any time before or during the hearing of this appeal. 42. In this appeal, grounds, facts and submissions of both the parties are identical to the facts and submissions of ITA No. 1158/JP/2019 and 1159/JP/2019 for the A.Y. 2011-12 and 2012-13 respectively, therefore, our findings given in ITA No. 1158/JP/2019 and 1159/JP/2019 for the A.Y. 2011-12 and 2012-13 shall apply mutatis mutandis in this appeal also. 43. Now we take ITA No. 1161/JP/2019 for the A.Y. 2014-....
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....nts as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same qua the issue under consideration are as under: "The Ld. A.O. in assessment order determined the interest paid to associated enterprises at Rs. 3,68,16,604/- instead of total interest paid amounting to Rs. 5,16,52,007/-, hence adding back excess interest of Rs. 1,48,35,603/- to the total income of the assessee and in not appreciating that the loan taken from associated enterprise cannot be compared with the bank loan as in the case in hand loan given by the associated enterprise are unsecured whereas loans provided by the bank are secured and further in not appreciating that income tax department has allowed the interest payment on unsecured loans at 18 percent per annum to the related parties in earlier year. In this connection it is submitted that company has set up a Hotel at Durgapura, Jaipur in 2011 with the financial assistance from IDBI Bank Limited. The Company has availed loan for an amount of INR 70 crores in the year 2009 from IDBI Bank Limited, bearing an interest rate of 14%. The said loan was secured by first charge ....
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....ipulation of period in which it is to be paid. Thus on these facts the interest rate of 18% p.a. to specified person is justified and within the market rates of interest on such loans and are at arms length. According to the audit report of M/s Royal Orchid Hotels Ltd. it is clearly mentioned that the company has obtained short term borrowings @ 18% and loans provided to Ksheer Sagar Developers Pvt. Ltd. also carries an interest rate of 18%. It is also reported that the interest rate on secured loans from different banks/financial institutions ranges from 14.75% to 18.99%. A comparison of the business loans from different banks shows the rate of interest ranges from 15.50% to 19.99%. In the related party transactions it is also informed by the auditors that there were no transactions of material nature with the promoters, the directors or the management, their subsidiaries or relatives etc. that have potential conflict with the interest of the company. The various legal decisions on the issue also held that interest on unsecured loans between 18% to 24% cannot be held unreasonable or excessive in terms of section 40A (2) (b) of the Act so they are to be taken at a....
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....paid to related concern has been held reasonable on unsecured loans. Furthur reliance is placed on judgement of ITAT Calcutta Bench in case of I.T.O Vs. Emami Chisel Art Pvt. Ltd. (ITA No. 1702/Kol/2011 decided on 2-12-2013) wherein interest ranging from 15-18% on unsecured and unguaranteed loan has been held unreasonable. The ITAT, Ahmedabad Bench in case of Murardas Shilpa bhai & Co. Vs. I.T.O. (ITA No. 89/And/2017 order dated 30-5-18 copy submitted) has held that taking loans from related persons could avoid a lot of formalities and in this view that payment of interest at a little higher rate to persons covered u/s 40A (2) (b) cannot be termed excessive. The Jaipur Bench of ITAT in case of ACIT Vs. Shiv Agrevo Ltd. (ITA No. 995 & 1055 (JP) of 2007 order dated 13-2-2009) where in Hon'ble Bench relying on several judgements categorically held that prevailing market rate of interest on loans of the permanent nature and long term unsecured loans is between 18% to 24% and so held interest rate of 18% allowed to related persons as reasonable. The above judgement of Jaipur Bench of ITAT has now been confirmed by Hon'ble Rajasthan High Court reported at CIT Vs. Shiv Agrevo Ltd.....
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....d by the appellant stating that same do not pertain to current year and interest rate are different for each year. 12.3 Based on the above the TPO recommended the adjustment of Rs. 1,83,73,764/- which was reiterated by the learned AO in his order for the A Yr. 12.4 After careful consideration f the matter and the written submissions the appellant I am of the view that TPO and the learned AO is not making an addition of Rs. 1,83,73,764/- for the following reasons; I. That the TPO has not given cognizance of interest payment @ 15 to 24% while explicitly mentioning it in the para 7.2 of his order. It simply implied that interest rate is not static and is dependent on various factors like time, person advancing it etc. II That the TPO is -not correct in treating loan from related party as in the nature of secured loan. Nature of loan, being secured or unsecured, does not depend relationship with the person. It depend on the fact that whether such loan is backed up with some security or assets mortgaged etc. in simple terms With a secured loan, the lender can take possession of the collateral if you don't repay the loan as you have agreed. A car l....
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....ces of the case, the ld. AO is directed to delete the addition of Rs. 1,48,35,403/-. The ground is allowed." 48. From perusal of the record, we observed that, as per view of the ld. CIT(A) that the TPO has not agreed to the interest payment @ 18% to the related party, loan taken from the family member of Tambi Group (detail can be seen on page l and 2 of the TPO order). After careful consideration of the matter and the written submissions the assessee we are of the view that TPO and the AO is not making an addition of Rs. 1,83,73,764/- for the following reasons; I. That the TPO has not given cognizance of interest payment @ 15 to 24% while explicitly mentioning it in the para 7.2 of his order. It simply implied that interest rate is not static and is dependent on various factors like time, person advancing it etc. II That the TPO is not correct in treating loan from related party as in the nature of secured loan. Nature of loan, being secured or unsecured, does not depend relationship with the person. It depend on the fact that whether such loan is backed up with some security or assets mortgaged etc. in simple terms With a secured loan, the lender can take pos....
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....ciating that the loan taken from associated enterprise cannot be compared with the bank loan as in the case in hand loan given by the associated enterprise are unsecured whereas loans provided by the bank are secured and further in not appreciating that income tax department has allowed the interest payment on unsecured loans at 18 percent per annum to the related parties in earlier year. We further observed that the company has set up a Hotel at Durgapura, Jaipur in 2011 with the financial assistance from IDBI Bank Limited. The Company has availed loan for an amount of INR 70 crores in the year 2009 from IDBI Bank Limited bearing an interest rate of 14%. The said loan was secured by first charge on all the movable and immoveable assets of the Hotel, Corporate Guarantee and personal guarantees of the promoters. The Hotel operations were commenced in the year 2011. Due to liquidity issues, there were delays in payment of interest, resulting in levy of penal interest/charges from the bank at 2% p.a. This resulted in the effective interest charge of 16% p.a. The promoters had to infuse money into the Company, in order to service the principal repayment of the loan. The promoters infus....