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TAXAP/559/2009 4/ 6 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No.559 of 2009
===================================================
COMMISSIONER
OF INCOME TAX-I - Appellant(s)
Versus
ADITYA
MEDISALES LTD - Opponent(s)
===================================================
Appearance
:
MRS
MAUNA M BHATT for Appellant(s) : 1,
None for Opponent(s) :
1,
===================================================
CORAM
:
HONOURABLE
MR.JUSTICE D.A.MEHTA
and
HONOURABLE
MS.JUSTICE H.N.DEVANI
Date
: 04/05/2010
ORAL
ORDER
(Per
: HONOURABLE MS.JUSTICE H.N.DEVANI)
In this
appeal under Section 260(A) of the Income Tax-Act, 1961 (the Act)
the appellant-revenue has proposed the following question:
Whether,
on the facts and in the circumstances of the case, the Appellate
Tribunal was right in law in confirming the order of the CIT(A)
deleting the disallowance made on account of excess interest payment
for Rs.56,63,131/- in view of section 40A(2)(a) of the Act?
The
Assessment Year is 1997-98 and the relevant accounting period is the
previous year 31.03.1997. The Assessing Officer found that the
assessee company had paid interest @ 18% to 20% p.a. to depositors,
ICDs and financial institutions while interest on overdue balance
was paid @ 24% to Sun Pharmaceuticals Industries Limited. The
Assessing Officer considered the interest paid @ 24% to Sun
Pharmaceuticals Industries Limited as excessive compared to interest
paid @ 18% to @20% to other parties. He held that the rate of
interest @ 20% was reasonable and accordingly disallowed 4% as
excessive and unreasonable by applying Section 40A(2)(a) of the Act
and made addition of Rs.56,63,331/-. In appeal by the assessee,
Commissioner (Appeals) deleted the said addition holding that the
Assessing Officer was not justified in invoking provisions of
Section 40A(2)(a) of the Act. Revenue carried the matter in appeal
before the Tribunal, but failed.
Mrs.M.M.Bhatt,
learned Senior Standing Counsel for the appellant has submitted that
both, Commissioner (Appeals) as well as the Tribunal were not
justified in deleting the addition inasmuch as no evidence had been
produced to substantiate rate of interest @ 24% p.a.
A
perusal of the order of Commissioner (Appeals) shows that
Commissioner (Appeals) has found substance in the contention raised
on behalf of the assessee that the provisions of Section 40A(2) of
the Act were not applicable to it without establishing a direct
relationship between the assessee and the payee company as defined
in Section 40A(2)(b) of the Act. Commissioner (Appeals) was further
of the view that, the interest had been paid looking to the business
needs of the Company and that too for raising unsecured loans which
were not easily available in the market to the assessee.
The
Tribunal in its impugned order has recorded that it is not clear
from the record as to whether the contention as to the applicability
of Section 40A(2)(b) of the Act was raised before the Assessing
Officer, and accordingly proceeded in the matter by assuming that
the provisions of Section 40A(2)(a) of the Act could be applied in
the present case. The Tribunal has recorded that the Assessing
Officer has inferred that the rate of 24% p.a. was excessive as the
assessee had paid interest at rates varying from 18% to 20% p.a. on
its other borrowings, that is, the deposits from public and loans
from financial institutions. It was contended on behalf of the
assessee that the market rate for capital during the relevant period
stood at 24% to 30% p.a. The Tribunal was of the view that even
though no basis or material to indicate the said market rates had
been laid by the assessee, normally if the interest rates from
organized sources are in the range of 20% p.a., the interest rates
from the general market would only be higher. According to the
Tribunal even if the assessee s claim is discounted, the rate of
interest at 24% p.a., which is the rate at which interest is paid by
the assessee, is not beyond conception. The Tribunal had also found
that the onus for the application of Section 40A(2)(a) of the Act is
on the revenue, which was not discharged by it.
Thus
both, Commissioner (Appeals) as well as the Tribunal have upon
appreciation of the evidence on record found that the revenue has
not been able to make out any case for applying the provisions of
section 40A(2)(a); and that interest on unsecured borrowings is
always higher than the rate of interest paid to the banks or
financial institutions from where the loans raised are secured
loans, and have accordingly accepted interest paid to Sun
Pharmaceuticals at the rate of 24% p.a. to be reasonable. In the
light of the concurrent findings of fact recorded by Commissioner
(Appeals) as well as the Tribunal, and considering the fact that the
findings and conclusions arrived at by the Tribunal are based on the
evidence on record as well as normal commercial practices, it cannot
be stated that the impugned order suffers from any legal infirmity
so as to warrant interference.
In
absence of any question of law, much less substantial question of
law, the appeal is dismissed.
Sd/-
[D. A.
MEHTA, J]
Sd/-
[
H.N.DEVANI, J]
***
Bhavesh*
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