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Income Tax Appellate Tribunal, DEHRADUN BENCH, NEW DELHI
Before: Sh. C. N. Prasad & SHRI M. BALAGANESH
THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN BENCH, NEW DELHI Before Sh. C. N. Prasad, Judicial Member AND SHRI M. BALAGANESH, Accountant Member (Through Video Conferencing) ITA No. 8351/Del/2018 (Assessment Year: 2014-15) Shiv Dayal Gupta Agencies P. Ltd, Vs. DCIT, 599, Badrinath Marg, KOtdwae, Circle-1(4)(1), Dehradun Rishikesh (Appellant) (Respondent) PAN: AACCS8810R
Assessee by : Shri Savyaschi Kumar Sahai, Adv Revenue by: Shri Pramod Verma, Sr. DR Date of Hearing 22/08/2023 Date of pronouncement 15/09/2023
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No. 8351/Del/2018 for AY 2014-15, arise out of the order of the Commissioner of Income Tax (Appeals), Dehradun, [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 10531/CIT(A)/DDN/2016-17 dated 15.11.2018 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 25.11.2016 by the DCIT, Circle-1(4)(1), Rishikesh (hereinafter referred to as „ld. AO‟).
The assessee has raised the following grounds of appeal:-
“1. Because the rejection of the appeal by the learned CIT-(A) is against the facts on record and in law. 2. Because it was wrong for the AO to rely on the Previous AO Order, and restrict the payment of interest of up to 13.25% when the Previous AO Order had in fact been over-ruled by the CIT-(A) Haldwani by order dated 3 May 2017, in Appeal no.442/15-16/CIT(A)/Camp/Dehra Dun.
ITA No. 8351/Del/2018 Shiv Dayal Gupta Agencies P. Ltd 3. Because it is wrong of the CIT-(A) to only acknowledge the principle of judicial discipline in the context of the two orders which were placed before him pursuant to which other CIT-(A) had allowed the Assessee to deduct interest payment of up to 18% in two previous assessment years, but failed to provide cogent reasons for not following the principle of judicial principle and accepting the findings mentioned in the orders submitted. 4. Because the AO and CIT-(A) did not take into consideration the funds requirements in the FMCG industry in which the Assessee Business operates. They failed to consider that the liquidity is required to be maintained for the entire financial year and loans are not availed for a specific event on a particular date. The AO and CIT-(A) wrongfully looked at the existence of business exigency only on a particular date. 5. The CIT-(A) did not consider the certificate placed before him issued by the State Bank of India Kotdwar Branch which mentioned that the interest rate charged for the overdraft facility extended was 18.25% and allowed interest payment of only up to 15% without elucidating justification for the same. 6. The submissions and evidence placed before the CIT-(A) were not considered in detail. The appeal was dismissed summarily by the CIT-(A) without providing a speaking order as a result of which justice was denied to the Appellant. Therefore, the order passed by the CIT-(A) is illegal, unjustified, arbitrary and bad in law.” 2. The only effective issue to be decided in this appeal is as to whether the ld CIT(A) was justified in restricting the allowability of interest on unsecured loans @15% as against 18.25 % paid by the Assessee.
We have heard the rival submissions and perused the materials available on record. The following facts are not in dispute:-
(a) the borrowings made by the Assessee from Kurmanchal Nagar Sahkari Bank Ltd carrying an interest rate @11% per annum; (b) borrowings made by the Assessee from State Bank of India, Rishikesh carrying an interest of @13.25 % per annum on the overdraft ; (c) Unsecured loan borrowed by the Assessee from its Director carry interest rate @18% per annum.
ITA No. 8351/Del/2018 Shiv Dayal Gupta Agencies P. Ltd 4. The ld. AO proceeded to treat the interest paid to the Director as excessive and unreasonable and allowed only @13.25% to be a reasonable rate of interest. However, the ld. CIT(A) allowed the interest at the rate of 15% per annum.
At the outset, it is pertinent to note that the borrowings made by the Assessee (both secured and unsecured loans) were utilised by the Assessee for the purpose of its business. This fact is not in dispute before us at all. The only issue in dispute is whether the interest paid @18% by the Assessee on unsecured loans received from its Director could be considered as reasonable when the banks are charging interest rate @11% and 13.25%. It is pertinent to note that the loans borrowed from banks are secured loans whereas the loans borrowed from directors are totally unsecured which obviously carry a higher rate of interest. As long as the fact, that what is borrowed is being utilized for business purpose by the Assessee, is not disputed by the revenue, the interest paid thereon would become an allowable deduction. In any case, the Assessee had brought on record the comparative rate of State Bank of India charging @18.25 % on overdraft facility when it is unsecured. Hence, the Assessee brought comparable instances which prove that the interest on unsecured loan paid to Directors @ 18% is below comparable case i.e. 18.25% charged by the bank. Hence, provisions of section 40A(2)(b) of the Act could not be invoked in the instant case as interest paid cannot be treated as excessive or unreasonable. Accordingly, we direct the ld AO to delete the disallowance of interest.
ITA No. 8351/Del/2018 Shiv Dayal Gupta Agencies P. Ltd 6. In the result, the appeal of the Assessee is allowed.
Order pronounced in the open court on 15/09/2023.
-Sd/- -Sd/- (C. N. Prasad) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 15/09/2023 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi