THE DCIT, CIRCLE-1(1)(1),, AHMEDABAD vs. M/S. AHMEDABAD STRIPS PRIVATE LTD.,, AHMEDABAD

C.O. No. 20/Ahd/2019 are appeal by the revenue and cross objection by the assessee directed against the order of the Ld. CIT(A)-1, Ahmedabad dated 21.09.2017 pertaining to A.Y. 2013-14, and revenue has taken following grounds : (1) That the ld.CIT(A) has erred in law and on facts in deleting the disallowance of interest u/s 40A(2)(b) of the Act ofRs.1,12,77,760/-. (2) The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.

The facts of the case are that During the year the company has paid interest @18% p. a. on unsecured loan/deposits obtained from all parties covered u/s 40A(2)(b) aggregating to Rs. 3, 23,58,5457-, as per the mutual agreed terms of the unsecured loan availed from the said parties. There is no discrimination or differences in the rate of interest in respect of unsecured loan parties to whom interest is paid. In previous year also the company has paid interest @ 18% p. a. on unsecured loans/deposits. The justification for payment of interest @ 18% p. a. is as under: i) The interest rate is not comparable with the bank interest rate, as the assessee company has borrowed unsecured loan from parties covered under section 40A(2)(b) of the Act on long term basis and without any primary or collateral securities. The loans provided by banks and financial institutions have additional cost of stamp duty and registration fees for mortgage of securities, upfront fees, processing fees, renewal fees and other incidental cost like inspection charge, review charge, audit charge, valuation charge, legai charge, etc. over and above interest cost and also the said loans are secured by some 3 & C.O. No. 20/Ahd/2019 . A.Y. 2013-14 tangible security and guarantee of directors and promoters. Thus, such loans are also costly, as the company has to pay/incur additional cost over and above the interest payable to the bank whereas the unsecured loans provided by parties, there is no collateral security given and it is fully unsecured, with higher risk and hence interest paid @ 18% p. a. is reasonable. ii) All the parties to whom interest paid @18% have filed their return of income and paying tax regularly. The confirmation of ledger account of all the parties from whom unsecured loans were taken during the year were submitted along with acknowledgement of return of income, statement of computation of income etc. and ail parties to whom 18% interest is paid have shown the interest as income in their income-tax' return and hence there is no any revenue loss. iii) Payment of interest @18% to the parties covered u/s 40A(2)(b) of the Act is not excessive and un-reasonable because the company has paid interest @18% due to business expediency as it was not possible for the appellant to borrow the fund from the bank or any other persons and if the company had not borrowed the fund @18%, from parties covered u/s 40A(2)(b) of the Act, then it is difficult to carry on the business and thus for the requirement of carrying on the business the appellant company has borrowed the fund @18% and has earned profit in the business and offered for taxation, it is not a case where the company has incurred interest cost and has shown business loss.

But ld. A.O. was not agree with the contention of the assessee and made addition of Rs. 1,12,77,760/- u/s 40A(2)(b).

Thereafter, assessee preferred first statutory appeal before the ld. CIT(A) who granted relief to the assessee.

We have gone through the relevant record and impugned order. At the outset, ld. A.R. cited an order of Co-ordinate Bench in assessee’s own case in for Assessment Year 2012-13. In assessee’s own case on similar ground relief was granted by the Co-ordinate Bench whereas before us assessment year is 2013-14. The Co-ordinate Bench granted relief to the assessee with following observation:

We have given a thoughtful consideration to the rival contentions and have carefully perused the order of the authorities below. The only basis of the Assessing Officer for making the disallowance was that the assessee has paid interest to unrelated parties at varying rates of 6%, 12% and 16%. In our considered opinion, solely because assessee had paid interest at different rates to different parties, that itself could not be a ground to come to the conclusion that payment of interest to related parties at rate other than that paid to other party was excessive and unreasonable. Our view is fortified by the decision of the Hon'ble Jurisdictional High Court of Gujarat given in the case of Sarjan Realities Ltd. in Tax Appeal No. 657 of 2014 50 taxmann.com 52. The relevant part of the decision of the Hon'ble Jurisdictional High Court reads as under:- "It is required to be noted that it is the contention on behalf of the revenue that as such the company paid the interest at different rates to different persons/companies and therefore, the same was rightly disallowed under section 40A(2)(b). However, it is required to be noted that except aforesaid there was no basis for the Assessing Officer to come to the conclusion that amount of interest paid at the rate of 12 per cent would relate to the concerned parties was otherwise excessive and/or unreasonable. It is not the case on behalf of the revenue that considering the market rate the: aforesaid interest paid at the rate of 12 percent can be said to be excessive and/or unreasonable. Under the circumstances, solely because the assesses for whatever reasons/consideration paid the, interest at different rates by that itself cannot be a ground to come to the conclusion that paying of Asstt. Year 2012-13 interest at higher rate than paid to other party was excessive and/or unreasonable. Under the circumstance both/the commissioner (Appeals) as well as the tribunal have rightly deleted the: disallowance sof Rs. 1.22 crores made by the Assessing Officer under isection 40A(2)(b). Under the circumstances, question is answered against the revenue. [Para 4.0]"

In so far as the rate of interest at 18% considered to be} excessive, the Co- ordinate Bench in the case of Vipul Y. Mehta (supra) has held that the payment of interest @: 18% per annum to. the relatives, on unsecured loans cannot be said to be, excessive or unreasonable.

Since relief has already been granted by the Co-ordinate Bench in assessee’s own case for identical facts and circumstances of the case. Thus, in parity with the above said order, we dismiss this appeal of the Revenue.

In the result, appeal filed by the Revenue is dismissed.

In the result, appeal filed by the Revenue is dismissed and C.O. filed by the Assessee is also dismissed.