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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH & DR. M.L. MEENA
आदेश आदेश /O R D E R आदेश आदेश
PER BENCH:
The appeal by the Assessee, is arising out of the order dated 31.01.2019 of the Commissioner of Income Tax (Appeals)-16, Chennai (hereinafter referred as “CIT(A))”, in for the Assessment Year 2013 – 2014.
The brief facts of the case are that the Assessee is in the business of distributors of mobile phones, cameras and its accessories filed its return of income for the Assessment Year 2013 – 2014 on 28.09.2013 admitting a total income of Rs.16,39,300/-. The return was processed u/s.143(1) of the Act and the case was taken up for scrutiny through “Computer Aided Scrutiny Selection [CASS] and notice u/s.143(2) of the Act dated 28.10.2015 was served to the Assessee.
The Assessing Officer had noted from the Profit and Loss Account, that the Assessee company had claimed financial cost to the tune of Rs.1,04,45,169/-. It is noted that the interest payment to the relative parties / key management personnel is slightly higher than the interest payment made to other parties. Interest payments were made to the Directors at the rate of 15%, whereas for other parties, the interest payments were only 14%. As regards to the differential rate of interest paid to the Directors and others parties as pointed out by the Assessing Officer, the whole-time Director of the company stated that, this was :: 3 :: not a willful attempt and that the entire interest has been offered for taxation in the individual hands, where taxes are payable on the higher slabs. Considering the higher interest of 1% paid to the key management personnel and Directors, the Assessing Officer considered it as excessive which amounted to Rs.4,47,448/- and disallowed the same and added to the returned income u/s.40A(2)(a) of the Income Tax act, 1961.
Aggrieved, the Assessee preferred an appeal before the learned CIT(A). However, the Assessee did not dispute the fact that he has paid interest at the rate of 15% to the key management personnel / Directors as against 14% to the third-party creditors.
None appeared on behalf of the Assessee.
Having heard the learned Departmental Representative, perusing the records and the impugned order, we observe that admittedly, the interest payment was made to the Directors at the rate of 15% as against the interest rate of 14% to the other parties. This resulted
:: 4 :: into excess payment of interest at the rate of 1% which computed to Rs.4,47,448/-, the disputed addition made by the Assessing Officer. The learned Counsel for the Assessee argued before us that there was no willful attempt of the Assessee to shift the profit business by paying higher interest to the Directors. He also argued that the entire interest granted has been offered to taxation in the individual hands, wherein, the taxes are also payable in the higher Tax slabs. It was further submitted by the learned Counsel for the Assessee that without collateral securities it is not possible to obtain larger loans from third parties whereas the Directors of the company advanced moneys on unsecured basis without such collateral securities, thereby 1% of additional interest was offered for their services. It was further submitted that the assessee has already pointed out to the Assessing Officer, (referred at paragraph no.3 of the Assessment Order), that the payment of interest by the Company to its Directors is completely revenue neutral, as the Directors are also liable to pay tax on their personal income tax at the same rate as the :: 5 :: company and hence there is no necessity for the company to deliberately violate Section.40A(2) of the Act. The copies of the returns of income and the computation statements of two of the Directors are attached in the paper-book in pages no.32 to 40. It is clear that the Directors are assessed at 30% tax slab. Thus, it is noted that in their individual capacity, these Directors of the company have paid taxes in higher Tax slab on their income while filing the return of income. Therefore, it was prayed by the learned Counsel for the Assessee that the addition of Rs. 4,47,448/- may kindly be deleted.
Considering the peculiar facts of the case that the due taxes to the Revenue Department has been paid by the Assessee company, whether it has been paid in the hands of the Directors in their individual capacity is not material.
What is material is that the tax liability worked out by the Assessing Officer on account of the difference in the rate of interest has been duly paid by the Director of the company in the higher Tax slabs by showing the income in their respective returns of income.
In view of the above, we accept that the grievance of the Assessee is justified and accordingly, the addition made by the Assessing Officer of Rs.4,47,448/- is hereby deleted. Thus, this ground of appeal is allowed.
In the result, the appeal of the Assessee in ITA No.:873/CHNY/2019 is allowed.
Order pronounced in the court on 10th March, 2022 at Chennai.