M/S. TALOJA AGRO FOODS PVT.LTD,NAVI MUMBAI vs. INCOME-TAX OFFICER, WARD - 3, PANVEL

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ITA 1291/PUN/2018Status: DisposedITAT Pune15 November 2019AY 2014-154 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the provisions of Section 40A(2) were not activated as the loans from directors were unsecured, unlike the secured bank loans. Therefore, the addition sustained by the CIT(A) was ordered to be deleted.

What were the facts?

The assessee paid interest of Rs. 40,70,119/- to its directors at 15%. The Assessing Officer disallowed the differential interest rate compared to bank loans, and the CIT(A) sustained a part of the addition.

What were the issues?

Whether the interest paid on unsecured loans to directors at a higher rate than secured bank loans is disallowable under Section 40A(2) of the Income-tax Act.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 40A(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE

Before: SHRI R.S. SYAL

For Appellant: Shri Sunil Vakharia
For Respondent: Shri Abhijit Chaudhuri

PER R.S.SYAL, VP :

This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals)-2, Thane on 01-06-2018 in relation to the assessment year 2014-15.

2.

The first two grounds against the confirmation of addition of Rs.5,22,670/- u/s. 41(1) of the Income-tax Act, 1961

2 ITA No.1291/PUN/2018 M/s. Taloja Agro Foods Pvt. Ltd.,

(hereinafter called `the Act’) were not pressed by the ld. AR.

The same, therefore, stand dismissed.

3.

The only other issue which survives in the appeal is

against the confirmation of addition u/s. 40A(2) of the Act on

account of interest paid on unsecured loans to the Directors.

4.

Succinctly, the facts of the case are that the assessee paid

interest of Rs.40,70,119/- to its directors @15%. The

Assessing Officer (AO) observed that the assessee obtained

bank loans at 11.50% interest rate. The differential rate of

3.50% was treated as disallowable in terms of section 40A(2) of

the Act. The ld. CIT(A) sustained the addition at 3% by

accepting the legitimate rate of interest at 12%. The assessee is

aggrieved by the confirmation of the addition.

5.

Having heard both the sides and gone through the relevant

material on record, it is observed from the impugned order itself

that the AO referred to bank interest rate which was a secured

loan as against the loans raised from Directors which were

unsecured. It is further observed from para 9.1 of the impugned

order that the bank had given concession of 2.90% for cash

credit facility and 3.40% for term loan. If both the concessions

3 ITA No.1291/PUN/2018 M/s. Taloja Agro Foods Pvt. Ltd.,

are factored in, the effective rate of interest comes to 14.40%.

In view of the fact that the assessee did not provide any security

in respect of loans taken from the directors at 15%, I am

satisfied that the provisions of section 40A(2) are not activated

in the peculiar facts and circumstances of the case. I, therefore,

order to delete the addition as sustained in the first appeal on

this score. This ground is allowed.

6.

In the result, the appeal is partly allowed.

Order pronounced in the Open Court on 15th November, 2019. Sd/- (R.S.SYAL) उपा�य� उपा�य�/ VICE PRESIDENT उपा�य� उपा�य� पुणे Pune; �दनांक Dated : 15th November, 2019 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत / Copy of the Order is forwarded to : अ�ेिषत आदेश आदेश आदेश 1. अपीलाथ� / The Appellant; ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / 3. The CIT (Appeals)-2, Thane 4. The Pr.CIT- 2, Thane िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6. // True copy // आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.1291/PUN/2018 M/s. Taloja Agro Foods Pvt. Ltd.,

Date 1. Draft dictated on 15-11-2019 Sr.PS 2. Draft placed before author 15-11-2019 Sr.PS 3. Draft proposed & placed -- JM before the second member 4. Draft discussed/approved -- JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *

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