ACIT, KOTA vs. HIMMATRAM JUHARMAL SARRAF, KOTA

PER SHRI KUL BHARAT, JM.

This appeal by the Revenue is directed against the order of ld. CIT (A), Kota,

dated 23.09.2016 pertaining to assessment year 2013-14. The Revenue has raised

the following grounds of appeal :-

“On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in:-

(i) Deleting addition of Rs. 38,94,108/- made by rejecting books of account u/s 145(3) of the Act; (ii) Deleting addition of Rs. 7,96,630/- made by disallowing interest paid to person specified u/s 40A(2)(b) at excess rate; (iii) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing”.

scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961

2 ITA No. 1058/JP/2016 M/s Himmatram Juharmal Sarraf. (hereinafter referred to as the Act) was framed by the order dated 8th Jan. 2016.

While framing the assessment, the Assessing Officer noticed various defects into the

books of accounts and after considering the submissions of the assessee rejected

the books of accounts and estimated the profit. Thereby, he made trading addition

of Rs. 38,94,108/- and also made addition by invoking the provision of section

40A(2)(b) of Rs. 7,96,630/- and also made addition on account of adhoc

disallowance of expenses out of scooters, cars, conveyance, entertainment, shop an

telephone expenses of Rs. 70,391/-. Aggrieved by this, the assessee preferred an

appeal before ld. CIT (A), who after considering the submissions partly allowed the

appeal. Out of three additions, the ld. CIT(A) confirmed the addition of Rs. 70,391/-

made on account of disallowance of expenses rest of the addition was deleted.

Aggrieved by this, the revenue has preferred the present appeal.

38,94,108/-. The ld. Departmental Representatives submitted that the ld. CIT (A)

was not justified deleting the addition. He submitted that the Assessing Officer has

examined the books on accounts and record various observations. He supported the

order of the Assessing Officer.

2.1 On the contrary, the ld. Counsel for the assessee supported the order of ld.

CIT(A) and also placed reliance on the following case laws:

(1) PCIT vs. Bhawani Silicate Industries (2016) 236 Taxman 596 (Raj.) (HC)

(2) Malani Ramjivan Jagannath Vs. ACIT 316 ITR 120/207 CTR 19 (Raj.

(3) CIT V. Gotan Lime Khaniz Udyog 256 ITR 243 (Raj.)

(4) Pr. CIT Vs. Hues India Ltd. 2015-TIOL-2275 (RaJ.) dt. 30-07-2015

(5) ITO vs. Swastik Udyog 29 CCH 829 (Jaipur) (Trib.)

3 ITA No. 1058/JP/2016 M/s Himmatram Juharmal Sarraf.

(6) Prem Cables (P) Ltd. Vs. Asstt. CIT 56 ITD 382 (JP).

(7) CIT Vs. Smt. Poonam Rani 326 ITR 223/41 DTR 194 (Del.) (2010)

(8) CIT Vs. Saatal Kattha & Chemical (P.) Ltd. 296 ITR 197 (MP)(HC)

(9) St. Teresa’s Oil Mills Vs. State of Kerala 76 ITR 365 (Ker.)

(10) ACIT Vs. Nitrochem India Pvt. Ltd. (2015) 43 CCH 54 (Ahd.) (Trib.)

2.2 We have heard the rival contentions, perused the material available on record

and gone through the order of the authorities below. Under the facts of the present

case it is to be examined whether the action of the Assessing Officer is justified in

rejecting books of accounts of the assessee. The Assessing Officer rejected books of

accounts by observing that the assessee has failed to bring any evidence to rebut

the defects pointed out to him, during the examination of books of accounts. The

law is well- settled that the Assessing Officer can reject books of account, if he is

satisfied that the accounts so place before him or from the material so gathered

during the assessment proceeding, the accounts of the assessee are not reflecting

true and fair picture of the profit. However, in the present case, we find that the ld.

CIT(A) has considered all the objection of the Assessing Officer. We agree with the

reasoning of the ld. CIT(A) that the objections of the Assessing Officer are superficial

based upon presumption and not upon the material evidence. Therefore, we do not

see any reason to interfere into the order of the ld. CIT (A), same is hereby affirm.

made by disallowing the interest to the person specified u/s 40A(2)(b) of the Act.

The ld. Departmental Representatives supported the order of the Assessing Officer

and submitted that ld. CIT was not justified in deleting the addition. He submitted

4 ITA No. 1058/JP/2016 M/s Himmatram Juharmal Sarraf.

that the assessee had claimed excessive interest at the rate of 15%. However, the

Assessing Officer treated 12% as reasonable per contra, the ld. Counsel for the

assessee has relied upon the decision of the co-ordinate Bench rendered in the case

of M/s Uttam Polyrubs India Pvt. Ltd. vs. ACIT in ITA No. 570/JP/2015. He

submitted that the Co-ordinate Bench has allowed under identical facts interest at

the rate of 18%.

3.1 We have considered, the rival contentions, that the ld. Counsel for the

assessee placed reliance upon the decision of the Co-ordinate Bench, wherein the

Co-ordinate Bench in ITA No. 570/JP/2015 has decided the issue by holding as

under:

“2.4 “We have gone though the rival submissions and the perused the material on record. It is noted that disallowance of Rs. 2,26,176/- has been made by the AO on account of excessive interest @ 21% paid to the persons specified u/s 40A(2)(b) of the IT Act. The AO thereafter gave a show cause notice to the appellant as to why the interest payment made to specified persons on unsecured loans be not restricted to 18% and the excessive payment of 3% interest be disallowed. It is thus note that the AO at the time of issuance of show-cause has not brought on record any basis or justification for suggesting rate of interest @ 18% as reasonable rate of interest. Subsequently, based on reply filed by the appellant, the AO stated that the appellant has itself confirmed the fact that even the maximum rate of interest on bank loans amounts to 18% on cumulative basis and he accordingly confirmed the disallowance of interest in excess of 18%. Here, what needs to be appreciated is that the AO the Ld. CIT(A) have failed to appreciate the distinction between a secured loan and an unsecured loan. The secured loan comparatively carried a lower risk element as compared to an unsecured loan and basis the risk assessment and other considerations, it typically carried a lower rate of interest. In the instant case, the appellant has taken unsecured loan and an appropriate comparison would have been the rate prevalent in the market vis-a-vis unsecured loan. Apparently, the appellant has stated that the prevailing market rate of interest on unsecured loans was 24%. However, nothing has been brought on record by the AO to suggest what the appellant has stated to be incorrect or there is a better comparison which is available.

We have gone through the judgment of Hon’ble Punjab and Haryana High Court in case of Ramesh Chand (HUF) (supra). In that case, addition was made in appellant’s case because of higher rate of interest paid by appellant to his mother as against market rate. The High Court confirmed the addition of ground that since transaction in question was not a genuine an bona fide transaction, Tribunal was justified in confirming addition of interest paid on old loan at higher rate of interest by applying provisions of section 40A(2)(b) and no question of law arises. In the instant case, there is no such allegation or finding of the lower authorities that the subject loan transaction was not a genuine transaction. Hence, this decision is no help to the Revenue.

5 ITA No. 1058/JP/2016 M/s Himmatram Juharmal Sarraf.

We have also gone through the decision of Hon’ble Gujarat High Court in case of Aditya Medisales Ltd. (supra) and finds that the same support the case of the appellant. In that case, the court has noted that the interest on unsecured borrowings is always higher than the rate of interest paid to the banks or financial institution from where the loans raised are secured loan, and have accordingly accepted interest paid to Sun Pharmaceuticals at the rate of 24% to be reasonable. In light o the above, we are of the view that ld. CIT(A) was not justified in confirming the disallowance of Rs. 2,26,176/- on account of interest paid by the appellant to specified persons u/s 40A(2)(b) of the IT Act. Hence, ground of the appellant is allowed.”

In the present case, the assessee has paid 15% to the persons specified u/s

40A(2)(b) under the facts of the present case we agree with the ld. CIT(A) that the

interest so claimed is not in excessive to the market rate. Therefore, we do not see

any reason to interfere into the order of the ld. CIT(A), same is hereby affirm. The

ground is raised by the revenue is rejected.

dismissed.

Order pronounced in the open court on Thursday, the 23rd day of March 2017.

Sd/- Sd/- ¼ HkkxpUn] ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 23/03/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

6 ITA No. 1058/JP/2016 M/s Himmatram Juharmal Sarraf.

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