COMMISSIONER OF INCOME TAX-III vs. PRABHUDAS KISHORDAS TOBACCO PRODUCTS PVT LTD

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TAXAP/451/2011HC GujaratGJHC24025256201111 June 2012Author: HONOURABLE MR. JUSTICE VIJAY MANOHAR SAHAI,HONOURABLE MR. JUSTICE N.V.ANJARIA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the issues involved were essentially based on facts presented before the lower adjudicating authorities. The Court found the reasons given by the Tribunal to be sound and free from perversity. Since the matter involved a factual controversy rather than a question of law, much less a substantial question of law, the High Court found no merit in the appeal. The appeal was accordingly summarily dismissed. The specific finding on the deletion of disallowance under Section 40A(2) by the Tribunal was upheld due to the factual nature of the dispute.

What were the facts?

The assessee, Prabhudas Kishordas Tobacco Products Pvt Ltd, filed its income tax return for the assessment year 2004-05, declaring a total income of Rs. 11,21,93,730/-. During scrutiny, the Assessing Officer (AO) observed that the assessee paid interest at 18% to its shareholders and other related parties under Section 40A(2)(b) of the Income Tax Act, 1961. The AO also noted that the assessee earned interest of 4-6% on fixed deposits with banks, despite having surplus funds. The AO disallowed the interest payment exceeding 15%, amounting to Rs. 4,12,27,149/-. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal. The Revenue has now filed this appeal before the High Court.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of Rs. 4,12,27,149/- made under Section 40A(2) of the Income Tax Act, 1961? Assessee's Contention: Not recorded in the judgment. Revenue's Contention: The revenue contended that the assessee paid excessive interest at 18% to related parties while earning lower interest on its own fixed deposits, indicating a lack of commercial expediency. The AO's disallowance of the excess interest was justified.

Which sections of the Income-tax Act were involved?

Section 40A(2),Section 143(2)

AI-generated summary — verify with the full judgment below

TAXAP/451/2011 1/3 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 451 of 2011 For Approval and Signature: HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE N.V. ANJARIA ======================================

1.

Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ====================================== COMMISSIONER OF INCOME TAX-III - Appellant Versus PRABHUDAS KISHORDAS TOBACCO PRODUCTS PVT LTD - Opponent ====================================== Appearance : MR M R BHATT, SENIOR STANDING COUNSEL ASSISTED BY MRS MAUNA M BHATT for Appellant. None for Opponent. ====================================== CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA

TAXAP/451/2011 2/3 JUDGMENT Date : 11/06/2012 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE V. M. SAHAI)

We have heard Mr. M. R. Bhatt, learned Senior Standing Counsel assisted by Mrs. Mauna M. Bhatt for the appellant – revenue. The Revenue has filed the instant appeal challenging the order dated 2.7.2010 of the Income-tax Appellate Tribunal proposing the following substantial question of law for the consideration and determination of this Court :- “Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of Rs.4,12,27,149/- made under Section 40 A(2) of the Act ?” The brief facts are that return of income was filed by the assessee Company on 29.10.2004 declaring total income of Rs.11,21,93,730/-. The Company manufactures tobacco products. The return filed by the asessee was taken up for scrutiny by issuing notice on 18.8.2005 under Section 143 (2) of the Income Tax Act, 1961. The Assessing Officer noticed that the assessee has paid interest @ 18% to its shareholders and other persons covered under Section 40A(2) (b). The assessee had also fixed deposits with the Bank and earned interest thereon @ 4 to 6%. The assessee had surplus funds, but instead of repaying the loans / advances carrying higher rates of interest, parked its funds with the Banks carrying interest at lower rates. The Assessing Officer

TAXAP/451/2011 3/3 JUDGMENT restricted the claim of interest payment to 15% and disallowed the excessive payment of interest of Rs.4,12,27,149/-. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee. The order of the CIT (Appeals) was challenged by the revenue before the Income Tax Appellate Tribunal which has dismissed the appeal on 2.7.2010. The order passed by CIT (Appeals) and the Income Tax Appellate Tribunal have been challenged in this appeal. In our opinion, the issues are essentially based on facts presented before the Adjudicating Authorities. The reasons given by the Tribunal are sound having no error nor any perversity. Since the issue involves factual controversy and not any question of law, much less, a substantial question of law, we do not find any merit in this appeal. This appeal is accordingly summarily dismissed. [V. M. SAHAI, J.] [N. V. ANJARIA, J.] Savariya

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