DEVVRAT IMPEX PVT. LTD.,NEW DELHI vs. DCIT, CIRCLE- 7(1), NEW DELHI

PDF · subscribers
ITA 3404/DEL/2018Status: DisposedITAT Delhi03 March 2023AY 2013-143 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the disallowance was not justified as the assessee had consistently paid similar interest rates in earlier and succeeding years without disallowance. The Tribunal found no change in facts or circumstances to warrant different treatment for the current year.

What were the facts?

The assessee company paid interest at 15% on unsecured loans from related parties and 12% on loans from other parties. The AO disallowed the difference of 3% on the related party loans, treating it as excessive under Section 40A(2)(b). The CIT(A) upheld the AO's decision.

What were the issues?

Whether the interest paid at 15% on unsecured loans from related parties was excessive and disallowable under Section 40A(2)(b) when the same rate was paid in other years.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH, ‘B’: NEW DELHI

Before: SHRI SHAMIM YAHYA & SHRI CHANDRA MOHAN GARG

For Appellant: Dr. Rakesh Gupta, Adv
Hearing: 27.02.2023Pronounced: 03.03.2023

ORDER PER SHAMIM YAHYA, AM,

These are appeals by the assessee against the respective orders of the Ld. CIT(A)-3, New Delhi, both dated 26.02.2018 and pertain to Assessment Years 2013-14 & 2014-15 respectively.

2.

Since, the issues are common and connected and the appeals were heard together, these are being consolidated and disposed of together for the sake of convenience by this common order.

3.

For the sake of reference, we are referring to grounds of appeal for Assessment Year 2013-14 reads as under:-

“1. The action of the AO in disallowing the sum of Rs.4,03,290/- out of interest paid by treating this amount as excessive and disallowable u/s 40A(2)(b) is unjust, illegal, arbitrary, illusory and the expense is fully allowable.

2. The action of the lower authorities in treating the interest paid @15% as highly excessive and thus disallowing a sum of Rs.4,03,290/- @ 3% and only allowing @12% is unjust, illegal, arbitrary, illusory and the full expense should be allowed.”

4.

Brief facts of the case are that the assessee company is engaged in the business of distribution of plastic pipes and fittings. During the course of assessment proceedings, the AO noted that the assessee has paid interest of Rs.29,11,880/- on account of unsecured loans received from related parties of Rs.20,16,450/- @ 15% and Rs.8,95,430/- to other parties @ 12% in its profit & loss account. The AO was of the opinion that the difference of 3% is not allowable and accordingly he disallowed the difference of 3% u/s 40A(2)(b) of the Act.

5.

Upon assessee’s appeal, the Ld. CIT(A) confirmed the action of the AO by noting that no specific reason has been submitted for payment of higher interest to parties covered by section 40A(2)(b) of the Act.

6.

Against the above order, the assessee is in appeal before us.

7.

We have heard both the parties and perused the records. The Ld. Counsel for the assessee pleaded that the assessee has been paying same interest in earlier years as well as succeeding years and no disallowance has ever been made. Furthermore, he submitted there were genuine reasons due to which higher interest was paid to those parties.

He submitted that these loans were obtained for company without any guarantee, etc and this was the reason why higher rate of interest was paid.

8.

The Ld. DR could not controvert the submission of the ld. Counsel for the assessee. Accordingly, upon careful consideration of the facts and circumstances of the case, we are of the considered opinion that the addition in this regard is not justified. We also note that the Revenue has not made any disallowance in earlier years as well as succeeding years.

Hence, there is no change in the facts and circumstances then there is no reason to give different treatment for this year. This is also liable to set-aside. Hence, we set-aside the orders of the authorities below and delete the additions.

9.

In the result, this appeal by the assessee stands allowed.

10.

Our above order applies mutatis mutandis to both the assessment years.

11.

Finally, both appeals of the assessee are allowed.

Order pronounced in the open court on 03rd March, 2023.

More judgments on Section 40A(2)(b)

All 1,172 judgments and leading authorities on Section 40A(2)(b) →

Recent GST High Court judgments

Search GST case law →