Mani Stock Brokers Ltd., New Delhi vs Assessee

BEFORE SHRI G. C. GUPTA, HON'BLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No. 1622/Del/2013 Assessment year : 2010-11 Mani Stock Brokers Ltd. Vs. DCIT, CC-8, (Now know as Mani Infra consultancy LLP) New Delhi C/o O.P.Sapra & Associates, Advocates, C-763, New Friends Colony, New Delhi-110 025 GIR / PAN:AAACD4968M (Appellant) (Respondent)

Appellant by : Shri A.K. Gupta, FCA Respondent by : Shri P. Dam Kanunjha, Sr. DR

Date of hearing : 12.03.2015 Date of pronouncement : 25.03.2015

ORDER

PER T.S. KAPOOR, AM:

This is an appeal filed by assessee against the order of Ld. CIT(A) dated 03.12.2012. The only effective ground taken by assessee is against action of Ld. CIT(A) by which he had confirmed the addition of Rs.1,09,620/- made by A.O. u/s 40A(2)(b) of the Act.

2. The facts and circumstances of the case are that during assessment proceedings the A.O. observed that assessee had paid interest to specified persons @ 15% p.a. whereas the rate of interest paid to others was ranging between 12% to 13.50%. When questioned by A.O., the assessee submitted that interest on unsecured loans was paid as per market trend. However, the 2 ITA No.1622/Del/2012

A.O. did not agree with the contention of assessee and made addition of Rs.1,09,620/- being excessive payment of interest u/s 40A(2)(b) of the Act. Aggrieved, the assessee filed appeal before Ld. CIT(A) and made various submissions. Ld. CIT(A) also did not agree with the contention of assessee and confirmed the addition. Aggrieved, the assessee is in appeal before us.

3. At the outset, Ld. A.R. submitted that the assessee had paid interest on unsecured loan and interest on unsecured loans from private persons is always at a higher rate as compared to interest charged by a bank. It was further submitted that banks generally disburse loan up to 60% to 70% of market value of security, whereas unsecured loans are granted without any security, therefore higher rate of interest had to be paid on loans raised on unsecured loans. It was further submitted that all the three person to whom interest had been paid, had requested for refund of deposits or payment of interest @ 18% and, therefore keeping in view the business interests, the assessee agreed to pay interest @ 15%. Moreover it was submitted that the assessee had earned interest income from M/s. Halwasia Developers Pvt. Ltd. @ 21% p.a. and in this respect, our attention was invited to paper book pages 1 & 2 where a copy of account of said party was placed.

4. Ld. D.R. heavily relied upon the orders of authorities below.

5. We have heard rival parties and have gone through the material placed on record.

6. We further find that A.O. had made the additions by holding as under:

"Vide letter dated 25.11. 2011 the assessee company was asked the rates of interest paid to persons other than specified persons with details of interest paid to them. Vide letter dated 05.12.2011 the assessee company has furnished rate of interest paid to persons to other persons. From the perusal of details of rates of interest filed, it is seen that the rate of interest paid to others are shown @ 12%, 13% & 13.50% and whereas rate of interest paid 3 ITA No.1622/Del/2012

to persons specified on the section 40A(2)(b) is shown @ 15% with a note that rate of interest is as per market trend on unsecured loan and is not excessive. 1 have considered the submission of the assessee company and find that the contention of the assessee is not acceptable in view of section 40A(2)(b). So the excess interest paid as computed below will be added to the income of the assessee for the year under consideration:

Sl. Name of specified Amount of Amount of interest payable at the Excess No. person interest paid 15% maximum rate of 13.50% interest paid

1 Nupur Saluja 3,47.631/- 3,47,631x13.50/15=3,12,867/ 34,764/- 2 Anuradha Saluja 5,60,918/- 5,60,918x13.50/15=5,04,826/- 56,092/- 3 Vishal Saluja 1,87,644/- 1,87,644x13.50/15=1,68,880/- 18,764/-

Total interest paid considered to be excessive Rs.1,09,620/- Thus as per above calculation excess interest paid to specified persons come to Rs.1,09,620/- (34,764 + 56,092 + 18,764), which is added to the income of the assessee for the year under consideration"

7. Before Ld. CIT(A), it was submitted that prime lending rates of banks was @12% to 13.5% and therefore, interest paid on unsecured loans @ 15% cannot be said to be excessive. Moreover, we find that assessee has earned interest on loans advanced by it @ 21% p.a. when fact is verifiable from paper book page I. The interest income earned by assessee is much more than interest paid by it which fact is also verifiable from P & L account placed at paper book page 3. Therefore, keeping in view the entire facts and circumstances, interest paid by assessee was not excessive.

8. In view of above facts and circumstances, the appeal filed by assessee is allowed.

9. Order pronounced in the open court on 25th March, 2015.

Sd./- Sd./- ( G. C. GUPTA) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER Date:25th March, 2015 4 ITA No.1622/Del/2012

Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

S.No. Details Date Initials Designation 1 Draft dictated on 16/3 Sr. PS/PS 2 Draft placed before author 18,19,20 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 25/3 Sr. PS/PS 6 Kept for pronouncement 25/3 Sr. PS/PS 7 File sent to Bench Clerk 25/3 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order