M/S VISHNULAXMI SILK MILLS,MUMBAI vs. ITO 18 (3)(5), MUMBAI

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ITA 983/MUM/2019Status: DisposedITAT Mumbai06 January 2020AY 2014-152 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal agreed with the assessee that interest rates in the market ranged from 18% to 21%, and even bank finance was available at 15%. Therefore, the disallowance of interest paid to related parties under Section 40A(2)(b) was not justified.

What were the facts?

The assessee paid interest at 18% to related parties, which the Assessing Officer disallowed, considering 12% as the fair market rate. The CIT(A) upheld this disallowance.

What were the issues?

Whether the interest paid to related parties at 18% was excessive and required disallowance under Section 40A(2)(b) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

Before: Shri Shamim Yahya (AM) & Shri Pawan Singh (JM)

For Appellant: Shri S.D. Pathak
For Respondent: Shri Akhtar H. Ansari
Hearing: 10.10.2019Pronounced: 06.01.2020

Heard together (2 matters)

I.T.A. No. 983/Mum/2019
I.T.A. No. 984/Mum/2019

Read from the judgment's own cause title. This page is filed under one of them.

Per Shamim Yahya (AM) :- These are appeals by the assessee wherein the assessee is aggrieved by the order of learned CIT(A) for the respective assessment years 2014-15 & 2015-16 wherein learned CIT(A) has sustained the disallowance of interest to the parties covered u/s. 40A(2)(b) of the Act.

2.

Brief facts of the case are that the Assessing Officer has observed that assessee has paid interest to outsiders at rates starting from 12% and other higher rates. He noted that assessee has paid interest at the rate of 18% to persons covered under section 40A(2)(b) of the Act. Assessing Officer proceeded to disallow interest paid to parties covered u/s. 40A(2)(b) of the Act by holding that the fair market value of the interest should be 12%. Learned CIT(A) upheld the Assessing Officer’s order.

3.

Against this order the assessee is in appeal before us. We have heard both the counsel and perused the records. Learned Counsel of the assessee

1.

2 M/s. Vishnulaxmi Silk Mills contended that the assessee is obtaining loan from the market at various rates ranging from 18% to 21% in the contemporaneous situation. He submitted that even bank finance is available at the rate of 15%. He further submitted that advances from relatives were obtained at the time of stress. He further submitted that these loans do not require any collateral or complicated documentation. Hence, learned counsel pleaded that no adjustment/ disallowance is required in this case u/s. 40A(2)(b) of the Act.

4.

Upon hearing both the counsel and perusing the records, we are inclined to agree with the contentions raised by learned counsel of the assessee. On the facts and circumstances of the case on consideration of cogency in the submission of learned Counsel of the assessee in our considered opinion the disallowance of interest to parties u/s. 40A(2)(b) of the Act is not justified. Hence, we direct that the disallowance of interest u/s. 40A(2)(b) be deleted.

5.

In the result, both the appeals filed by the assessee stand allowed. Order has been pronounced in the Court on 06.01.2020.

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