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Income Tax Appellate Tribunal, ‘B’ (SMC
Before: SHRI ABRAHAM P.GEORGE
आदेश / O R D E R
PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER:
In this appeal filed by the assessee which is directed an order dated 06.12.2017 of the Commissioner of Income Tax (Appeals)-13, Chennai, it has raised two issues through its grounds 1 to 3.
First issue is on a disallowance of Rs.15,01,906/- made by the AO u/s.40A(2)(b) of the Income Tax Act, 1961 (in short “the Act”) and the second issue is on a disallowance of Rs.7,97,442/- on air ticket and boarding expenses.
Ld.Counsel for the assessee submitted that the assessee engaged in the business of Water Management and Consultancy and filed its return for the impugned AY declaring total income of Rs.1,14,720/-. As per the Ld.AR, the assessee was a subsidiary of one M/s.IL & FS Ltd. Submission of the Ld.AR was that the assessee had debited interest of Rs.51,06,479/- on a secured term loan of Rs.6.00 Crs. taken from its holding company. As per the Ld.AR, rate at which interest was paid was @17% p.a. Submission of the Ld.AR was that the AO restricted the interest to @12% and made a disallowance of the difference coming to Rs.15,01,906/-. As per the Ld.AR, the AO had relied on Sec.40A(2)(b) of the Act for making such disallowance.
Further, as per Ld.AR, such disallowance was confirmed by the Ld.CIT(A).
Contention of the Ld.AR is that Sec.40A(2)(b) of the Act was not applicable since M/s.IL & FS Water Ltd., was the holding company. Further, as per the Ld.AR, even otherwise, the interest paid @17% was not excessive. As per the Ld.AR, the AO as well as the Ld.CIT(A) had considered bank rate of 12% as reasonable without referring to any document, and without citing any reason why they considered bank rate for comparison. Thus, according to him, the disallowance made was unfair.
Per Contra, Ld.DR submitted that Sec.40A(2)(b) of the Act was clearly applicable. According to him, there was no reason why assessee paid excessive interest to its holding company on loans raised from them.
I have heard the rival contentions and perused the orders of the authorities below carefully. Lower authorities had considered @12% to be a reasonable rate for payment of interest. The Ld.AO states in his order that @12% p.a. was reasonable, based on market rates. As against this, the Ld.CIT(A) says that rate of 12% was what was charged by the banks. In my opinion, the comparison attempted by the lower authorities was incorrect.
Loans from private parties will always have higher rate of interest than loans from banks, since formalities and procedures to be followed while applying for a loan from bank, is much more cumbersome than loan from private parties.
It is a principle of economics that risk and returns go together. In my opinion, rate of interest @17% paid by the assessee on the loans raised by it from its holding company could not have been considered excessive unless similar comparable cases were identified by the Ld.AO. The disallowance was not warranted. Such disallowance stands deleted.
Second issue raised by the assessee is with regard to the disallowance of Rs.7,97,442/- being air ticket and boarding expenses. Ld.AO during the course of assessment proceedings had noted that assessee had debited Rs.54,33,218/- as air ticket charges and Rs.25,41,196/- as boarding expenses in his P&L A/c. It seems despite request from the Ld.AO, the assessee did not provide any documentary evidence for justifying the claim, except for furnishing a copy of the ledger account. The AO considering the possibility of personal expenditure being imbedded in this claim disallowed 10%. Appeal of the assessee before the Ld.CIT(A) did not meet with any success.
Now before us, Ld.AR submitted that the full details of the claim was filed before the Ld.CIT(A). According to him, employees were required to undertake tours in discharge of their official duties and the assessee was having supporting vouchers.
I have heard the rival contentions and perused the orders of the authorities below carefully. The AO has disallowed @10% of the claim of air fare and boarding expenses, considering the failure of the assessee to produce vouchers in support of the claim. Except for filing a ledger copy, assessee had not filed any evidence before the AO. No doubt, Ld.CIT(A) has taken note of the vouchers which were filed before him along with extract of the statement but did not find it to be satisfactory. In my opinion, assessee was not able to justify its claim with proper evidence. Lower authorities could not be faulted for making a disallowance @10% of such claim. I do not find any reason to interfere with the orders of the lower authorities on this issue.
Accordingly, such disallowance is sustained.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on the 15th day of October, 2018, in Chennai.