S.P. Investments, Mumbai vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI D. KARUNAKARA RAO, AM

आयकर अपील सं./I.T.A. No.6681 /Mum/2011 ( नधा रण वष / Assessment Year : 2006-07 M/s S.P. Investment, बनाम/ Dy. CIT, Cir. 15(2), 501, Shreenath Apt., Mumbai. Vs. Poddarlane, Santacruz (W), Mumbai -400 054. थायी ले खा सं . /PAN : AAWFS1471M (अपीलाथ /Appellant) .. ( यथ / Respondent)

Appellant by Ms. Bhumika Vora Respondent by Smt. N.V. Nadkarni

ु वाई क तार ख / Date of Hearing सन : 13-05-2015 घोषणा क तार ख /Date of Pronouncement : 10-06-2015 [

आदे श / O R D E R PER VIJAY PAL RAO, J.M. :

This appeal by the assessee is directed against the order dated 13-07-2011 of ld. CIT(A)- 26, Mumbai pertaining to A.Y. 2006-07.

2. The assessee has raised the following grounds of appeal:-

"1. On the fact and in the circumstances of the case and In law, the learned CIT (A) -26 , Mumbai erred in upholding the disallowance of interest of RS 120381/- out of interest payment of Rs 601904/- made to relatives of the partners by applying provision of section 40A(2)(b) of the Income Tax Act, 1961.

2. On the fact and in the circumstances of the case and in the law, the learner CIT (A) -26, erred in upholding the disallowance of Rs 120381/- out of interest payment of Rs 601904/- paid to the relatives of the partner at 15% per annum by observing that the interest paid in excess of 12% is disallowable u/s 40A(2(b) by 2 ITA 6681/M/11

overlooking the fact that you appellant has paid interest @15% per annum to outsider also.

3. On the fact and in the circumstances of the case and in law, the learned commissioner of Income Tax Appeal -26 Mumbai erred in upholding the disallowance of Rs 120381/- u/s 40A (2)(b) without appreciating the fact that interest payment @15° .a. was allowed to your appellant in full for immediately preceding year and in A.Y. 2007-0.8, which was the assessment framed u/s 143(3) and also without appreciating the law position that while allowing a particular expenditure, the revenue cannot act as a business men."

3. During the course of assessment proceeding, the A.O. noted that the assessee has paid interest @15% to the relatives of the partners of the assessee firm in comparison to the interest paid @ 12% to other partiers. Accordingly, the A.O. proposed to disallow the excess interest paid to the relatives of the partners of the firm by invoking the provisions of section 40A(2)(b) of the Income Tax Act, 1961. The assessee objected to the addition proposed by the A.O. and filed the details to justify the interest paid @ 15% to some of the parties. The A.O. did not accept the contention of the assessee and made the addition on account of excess payment of interest over and above 12% u/s 40A(2)(b) of the Act. The assessee carried the matter before the ld. CIT(A) but could not succeed.

4. Before us, the ld. Counsel for the assessee has submitted that the assessee had paid interest @ 15% to some of the depositors other than relatives of the partners of the firm. The interest paid by the asseessee varies from 12 to 15% depending upon the exigencies of the business and therefore the interest is paid as per the funding requirement of the assessee firm carrying out the business of bill discounting. Thus the ld. Counsel has submitted that the A.O. has selected the cases where the assessee had paid 12% to compare with the interest paid to the relatives of the partners but ignored the interest paid by the assessee at 15% to non-relative parties. He has relied upon the following cases:-

3 ITA 6681/M/11

1. ITA No. 2055 & 2056/Ahd/2008 for A.Y. 2002-03 & 2005-06 order dated 7-1-2011 in the case of ACIT vs. M/s Budhalal & Co.

2. ITA No. 29/Ind/2014 for A.Y. 2008-09 order dated 13-06-2014 in the case of M/s Shivram Cotton Corporation vs. Addl. CIT.

The ld. Counsel has also filed a statement of interest paid to the persons other than the relatives of the partners to show that the assessee had paid the interest @ 15% in a number of cases other than the related parties.

5. On the other hand, the ld. D.R. relied upon the orders of authorities below and submitted that the A.O. has brought out specific instances where the assessee had paid 12% to the persons other than the related parties and the interest paid @ 15% to the related parties, therefore, the disallowance made by the A.O. u/s 40A(2)(b) of the Act is justified.

6. We have considered the rival submissions and also perused the relevant material placed on record. The A.O. has picked up certain instances of payment of interest by the assessee @ 12% to the un-related parties which has been compared with the interest paid by the assessee @ 15% to the related parties. Accordingly, he has made a disallowance being the excess of interest @ 3% paid to the related parties. It is pertinent to note that the A.O. has picked up 10 cases of the non-relative parties where the assessee has paid 12% and nine cases of related parties where the assessee has paid interest @ 15%. The assessee has filed the details of interest paid to the un- relative parties @ 15% which contained about 30 un-related parties where the assessee has paid interest @ 15%. It appears that the A.O. has pick and chose only those cases when the interest has been paid by the assessee @ 12% and ignored the number of other cases where the assessee has paid interest @ 15% to the un-related parties. If the facts brought out by the assessee before us by filing the statement of interest paid to the un-related parties are correct, then, no disallowance is called for u/s 40A(2)(b) of the Act because the assessee has paid the interest @ 15% to as many as 30 parties 4 ITA 6681/M/11

other than the relative parties. In view of the above facts and circumstances, we set aside the orders of the authorities below and direct the A.O. to verify the correctness of the list filed by the assessee before us in respect of the interest paid to the un-related parties @ 15% and then decide the claim of the assessee in terms of the above observations.

7. In the result, appeal filed by the assessee is allowed in terms indicated above.

Order pronounced in the open court on 10th June, 2015.

ु े #यायालय म% &दनांकः 10-06-2015. को क गई ।

आदे श क घोषणा खल

Sd/- sd/- (D. KARUNAKARA RAO) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; &दनांक Dated 10-06-2015 [ व.5न.स./ R.K. R.K , Sr. PS

आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आय6 ु त(अपील) / The CIT(A) -26, Mumbai

4. आयकर आयु6त / CIT- -15, Mumbai

5. 9वभागीय 5त5न;ध, आयकर अपील य अ;धकरण, मुंबई / DR, ITAT, Mumbai E Bench

6. गाड? फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

स या9पत 5त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मंब ु ई / ITAT, Mumbai