SHRI NARESH KUMAR LUHADIA,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7, JAIPUR

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ITA 1110/JPR/2018Status: DisposedITAT Jaipur05 April 2019AY 2014-154 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 since the assessee paid interest at 18% to unrelated parties, the same rate paid to related parties was not unreasonable or excessive, considering the flexibility and advantages of loans from relatives. Therefore, the disallowance was not warranted.

What were the facts?

The assessee paid interest on loans taken from relatives at a rate of 18%. The Assessing Officer disallowed a portion of this interest, invoking Section 40A(2)(b) of the Income Tax Act, alleging it was excessive. The CIT(A) upheld the AO's disallowance.

What were the issues?

Whether the interest paid to related parties at 18% is excessive or unreasonable, warranting disallowance under Section 40A(2)(b) of the Income Tax Act.

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, JAIPUR BENCHES “A”, JAIPUR

Before: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 1110/JP/2018

For Appellant: Shri Vikas Jain (CA) jktLo dh vksj ls@
Hearing: 04/04/2019Pronounced: 05/04/2019

ORDER PER: R.C. SHARMA, A.M. This is an appeal filed by the assessee against the order of ld.CIT(A)-3, Jaipur dated 20/07/2018 for the A.Y. 2014-15 in the matter of order passed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act).

2.

In this appeal, the assessee is aggrieved for disallowance of Rs. 1,88,032/- out of interest paid to relatives by invoking provisions of Section 40A(2)(b) of the Act.

1.

2 ITA 1110/JP/2018_ Naresh Kr. Luhadia Vs DCIT 3. Rival contentions have been heard and record perused. The facts in brief are that the assessee is a proprietor of M/s Kissan Pashu Aahar Udyog and derives income from manufacturing and selling of cattle feed and from trading of shares and from income from house property. During the course of assessment proceedings, the A.O. found that the assessee has taken loan on interest from various parties, rate of interest was varying from 15 to 18%. The A.O. alleged that the assessee has paid higher rate of interest @ 18% to the parties related to him, therefore, by invoking provisions of Section 40A(2)(b) of the Act he made disallowance of Rs. 1,88,032/-. By the impugned order, the ld. CIT(A) confirmed the action of the A.O. against which the assessee is in further appeal before the ITAT.

4.

At the outset, the ld AR of the assessee has drawn our attention to the decision of the ITAT Jaipur Bench in (ITA NO. 984/JP/2018) in assessee's own case on the same ground of appeal for the A Y 2013-14, wherein the Tribunal held that:

"We find that when the majority of the unrelated parties are paid by the assessee at 18%, then the payment of interest to the related parties @18% is not unreasonable or excessive having regard to the fact that there are various advantages of having the loans from the related parties for repayment of loans as well as no collateral or 3 ITA 1110/JP/2018_ Naresh Kr. Luhadia Vs DCIT other security is required. Undisputedly, in case of unrelated parties, the repayment has to be made strictly as per schedule or agreement between the parties whereas in case of related parties the repayment of loan is as per convenience of the assessee and there is advantage of flexibility of repayment schedule. Accordingly, in view of the fact that in majority of unrelated parties the interest rate was 18% would not fall in the category of excessive or unreasonable interest paid to the related parties, hence we delete the addition made by the A.O. in this regard.”

5.

On the other hand, the ld DR has relied on the orders of the authorities below.

6.

We have considered the rival contentions and carefully gone through the orders of the authorities below and found that exactly similar issue was decided by the Tribunal in assessee’s own case for the immediate preceding year i.e. A.Y. 2013-14. The Tribunal have dealt with the issue threadbare and after recording the detailed findings reached to the conclusion that the majority of the unrelated parties were paid, interest rate at the rate of 18%, therefore, payment of interest @ 10% to the related parties would not fall in the category of excessive or unreasonable interest. Hence, no disallowance is warranted. As the facts and circumstances during the year under consideration are pari materia, respectfully following the order of the Tribunal in assessee’s own case,

4 ITA 1110/JP/2018_ Naresh Kr. Luhadia Vs DCIT we do not find any merit in the disallowance so made by the A.O. by invoking the provisions of Section 40A(2)(b) of the Act.

7.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 05th April, 2019.

Sd/- Sd/- ¼fot; iky jko½ ¼jes'k lh 'kekZ½ (VIJAY PAL RAO) (RAMESH C SHARMA) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 05th April, 2019 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shri Naresh Kumar Luhadia, Jaipur. 1. izR;FkhZ@ The Respondent- The D.C.I.T., Circle-7, Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 1110/JP/2018) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत

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