COMMISSIONER OF INCOME TAX-I LUDHIANA vs. AMRIK SINGH PROP. M/S NEXO PRODUCTS (INDIA)

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ITA/347/2013HC Punjab & HaryanaPHHC01105216201329 April 2015Author: MR. JUSTICE A.B. CHAUDHARI,MR. JUSTICE M.M. AGGARWAL2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the first question of law regarding the deletion of addition under Section 2(22)(e) had already been answered in favour of the assessee by a previous Division Bench order dated 20.02.2015. For the second question, the High Court held that it was not a substantial question of law but purely a question of fact. The mere fact that the assessee obtained loans at 12% per annum did not belie the assessee's contention that loans from family were at 15% per annum, which was a matter of factual appreciation. Similarly, the third question concerning the disallowance under Section 36(1)(iii) was also admitted to be a question of fact, relating to the use of borrowed funds for capital work in progress, and the assessee's case had been upheld in previous years on this aspect. Therefore, no substantial question of law arose for consideration.

What were the facts?

The appeal was filed by the Commissioner of Income Tax, Ludhiana (appellant) against the order of the Income Tax Appellate Tribunal (ITAT). The respondent is Amrik Singh, Proprietor of M/s Nexo Products (India), Ludhiana. The appeal pertains to assessment year(s) not explicitly stated but implied to be prior to 2013. The ITAT had deleted additions made by the Assessing Officer, which were partly confirmed by the CIT(A). The additions related to deemed dividends under Section 2(22)(e), disallowance of excess interest paid to specified persons under Section 40A(2)(b), and proportionate interest on borrowed funds used for capital work in progress under Section 36(1)(iii). The High Court is considering whether substantial questions of law arise from the ITAT's order.

What were the issues?

The High Court had to decide the following questions of law: 1. Whether the ITAT was justified in deleting the addition of Rs. 1,25,00,000/- made under Section 2(22)(e) of the Income Tax Act, 1961, which was partly confirmed by the CIT(A) to the tune of Rs. 20,42,725/-. 2. Whether the ITAT was justified in upholding the CIT(A)'s order deleting the disallowance of Rs. 1,12,073/- made under Section 40A(2)(b) as excess interest paid at 15% to specified persons compared to the average rate of 12% paid to banks. 3. Whether the ITAT was justified in upholding the CIT(A)'s order deleting the disallowance of Rs. 87,220/- made under Section 36(1)(iii) of the Income Tax Act, 1961, in respect of proportionate interest on borrowed funds used for capital work in progress. Assessee's contentions: Not explicitly recorded for all issues, but implied that the loans were from family and the interest rate was justified. The ITAT's findings on facts were accepted. Revenue's contentions: The revenue argued that the ITAT was not justified in deleting the additions made by the Assessing Officer on the grounds stated in the questions of law.

Which sections of the Income-tax Act were involved?

Section 2(22)(e),Section 40A(2)(b),Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH Date of decision:29.04.2015 Commissioner of Income Tax, Ludhiana

....Appellant

Versus Amrik Singh, Proprietor M/s Nexo Products (India), Ludhiana

......Respondent CORAM: HON'BLE MR.JUSTICE S.J.VAZIFDAR, ACTING CHIEF JUSTICE HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present: Mr.Rajesh Katoch, Advocate, for the appellant. Mr.Rajiv Sharma, Advocate, for the respondent. ****

S.J.Vazifdar, Acting Chief Justice (Oral): The appellant has raised the following questions of law: “(i) Whether on the facts and circumstances of the case, the Hon'ble ITAT was justified in law, in deleting the addition of Rs. 1,25,00,000/- made u/s 2(22)(e) of the Income Tax Act, 1961 which was partly confirmed by the CIT(A) to the tune of Rs. 20,42,725/-. (ii) Whether on the facts and circumstances of the case, the Hon'ble ITAT was justified in law in upholding the order of the Ld. CIT(A) in which disallowance of Rs. 1,12,073/- made u/s 40A(2)(b) being excess interest paid at 15% to specified persons as against average rate of interest at 12% being paid to banks and other financial institutions was deleted. (iii) Whether on the facts and circumstances of the case, the Hon'ble ITAT was justified in law in upholding the order of the CIT(A) deleting the disallowance of Rs. 87,220/- made u/s 36(1)(iii) of the Income Tax Act, 1961 in respect of proportionate interest on borrowed funds used for capital work in progress.”

2.

The first question has already been answered in favour of the respondent-assessee, in this very appeal, by the order of the Division Bench dated 20.02.2015. SAILESH RANJAN 2015.05.01 10:03 I attest to the accuracy and integrity of this document -2-

3.

The second question raised is not a substantial question of law. It is purely a question of fact. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal rightly held that the mere fact that the assessee obtained loans @ 12% per annum does not belie the assessee's contention that the loans are from the family, which are at 15% per annum. It was a question of appreciation of fact and thus, no question of law arises.

4.

The third question is also, admittedly, a question of fact, namely, as to whether the amounts borrowed were used for capital work in progress. Even in the previous years, the assessee's case has been upheld.

Thus, no substantial question of law arises for consideration and the appeal is, accordingly, dismissed. (S.J.Vazifdar) Acting Chief Justice 29.04.2015

(G.S.Sandhawalia) sailesh

Judge SAILESH RANJAN 2015.05.01 10:03 I attest to the accuracy and integrity of this document

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