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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: MS. MADHUMITA ROY & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 26.11.2018 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”], which in turn arise out of assessment-order dated 13.03.2015 passed by learned DCIT-1(1), Bhopal [“Ld. AO”] u/s 143(3) of the Income-tax Act, 1961 [“the Act”] for AY 2012-13, the assessee has filed this appeal on following grounds:
“1.Ld. appellate Authority has erred in not allowed interest paid amounted to Rs. 490876/-.
Ld. appellant authority has erred in not allowing donation of Rs.12101/-.”
Bhopal Switchgears Pvt. Ltd. ITA No.591/Ind/2019 Assessment year 2012-13 2. At the time of hearing none appeared on behalf of assessee. Since the issues involved in appeal are very small, we proceeded with hearing.
The registry has informed that this appeal is filed after a delay of 102 days and therefore time-barred. On perusal of record, it is found that the authorized representative of assessee, Shri Amresh Shukla, has himself filed an application for condonation of delay. The application reads as under:
“Sub: Condonation of Delay Dear Sir Your appellant is a private limited company, engaged in the manufacturing of Electrical Control Panels, Fabrication items and External Electrification Works, Bolted Trust & VM House, Air Bread Switches, Junction Boxes, Marshalling Boxes, Batter charger etc. having its unit at 29-E, Industrial Areas, Govindpura, Bhopal (MP). Aggrieved by the order of CIT(Appeal)-3, Bhopal we have preferred an appeal before your good. Your honor due to some clerical mistake relevant file of your appellant have been kept in another parties file due to that we could not file the appeal before your good self well in time. You are requested to kindly condone the delay and allow the appeal. We are enclosing herewith challan of Rs.500/- (Internet Banking Txn No.5027931940) towards fee for condonation of delay. Please do the needful and condone the delay. Thanks For Bhopal Switchgears Private Limited (Amresh Shukla) A.R. Bhopal 13.05.2019” 4. On a careful reading of the underlined contents of application, it is quite clear that the not only the Authorized-Representative of assessee, Shri Amresh Shukla, has himself signed and filed condonation-application but also admitted his own mistake which resulted in delay. The Authorized- Page 2 of 6
Bhopal Switchgears Pvt. Ltd. ITA No.591/Ind/2019 Assessment year 2012-13 Representative has categorically stated that due to some clerical mistake, the file of appellant was kept in files of other parties and, therefore, the appeal could not be filed in time. This demonstrates that there is no fault on the part of assessee. It is further observed that with all humbleness, a fee of Rs. 500/- has also been paid to exchequer and a challan bearing Serial No. 01397 dated 18.03.2019 is also filed alongwith condonation-application. Considering that the delay is attributable to the fault of authorized- representative for which the door of justice should not be closed for assessee, we find it a fit case for condonation of delay on the guidelines evolved by Hon’ble Supreme Court in Collector, Land Acquisition Vs Mst. Katiji and others 1987 AIR 1353, 1987 2 SCC 387. We confronted Ld. DR who was fair enough in not placing any objection. In this view of matter, we are inclined to condone the delay and proceed for hearing of appeal.
Ground No. 1:
The issue involved in Ground No. 1 relates to the disallowance of interest of Rs. 4,90,876/-. During assessment proceeding, Ld. AO observed that the assessee has paid a total interest of Rs. 19,63,506/- @ 24% on loans taken from different persons. Ld. AO observed that the prevailing market rate of interest was 12% and therefore the interest payment was excessive. Therefore, the Ld. AO restricted deduction to 12% and disallowed extra 12% amounting to Rs. 9,81,753/-. During appellate-proceeding, Ld. CIT(A) accepted 18% interest as per market-rate and restricted disallowance to Rs. 4,90,876/-. This way, Ld. CIT(A) granted part-relief to the assessee but at the same time sustained disallowance partly to the extent of Rs. 4,90,876/-.
On perusal of the orders of lower authorities, we observe that the assessee is a company and the funds have been borrowed and used for the purpose of business. This is a fact admitted by lower authorities and there is no dispute about it. We further observe that the assessee has made a clear submission to revenue authorities that that due to difficulties in obtaining
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Bhopal Switchgears Pvt. Ltd. ITA No.591/Ind/2019 Assessment year 2012-13 loan from bank or financial institutions and limited security options available with it, the assessee had to borrow long term funds without security from those persons to whom interest @ 24% was paid. The assessee also submitted that the borrowing from private persons depends upon relations only. This way, the assessee tried to justify 24% as legitimate rate of interest having regard to the needs of business. We observe that the explanation given by assessee is quite legitimate but the revenue authorities have made their own estimation and that too without citing any cogent basis. We observe that not only the comment made about prevailing interest-rate is general by lower authorities, but also Ld. AO has accepted 12% as prevailing-rate and Ld. CIT(A) has accepted 18% as prevailing-rate. We all know that the interest-rate depends upon the need of the borrower and also the timing, terms and conditions and there cannot be any standard formula. Having regard to the fact that the assessee has given a reasonable explanation which the lower authorities are not able to controvert by any cogent basis, we are of the view that the interest paid by assessee should get full deduction. Ld. DR, though vehemently supported the orders of lower authorities, but we do not find any merit in the claim of revenue. Therefore, we are inclined to delete the disallowance of Rs. 4,90,876/- sustained by Ld. CIT(A). Ground No. 1 of assessee, therefore, succeeds.
Ground No. 2:
This Ground relates to the disallowance of donation of Rs. 12,101/-. Ld. AO has mentioned that the donation-expenditure is not allowable u/s 37(1) of the Act. Ld. CIT(A) has sustained addition for the reason that no specific-submission was made by assessee on allowability of deduction.
We observe that one of the conditions prescribed in section 37(1) for giving deduction, is that the expenditure must have been incurred wholly and exclusively for the purpose of business. Prima facie, unless otherwise proved, donation is for charity purpose and cannot be said to be incurred “wholly and exclusively” for business. The records show that the assessee
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Bhopal Switchgears Pvt. Ltd. ITA No.591/Ind/2019 Assessment year 2012-13 has not made any effort before the lower authorities to prove that donation was paid for business purpose. This being so, we agree with the conclusion made by lower authorities and uphold the disallowance. Thus, the assessee fails in this Ground.
In the result, this appeal of assessee is partly allowed.
Order pronounced in the Open Court on 23/09/2022.
Sd/- Sd/-
(MADHUMITA ROY) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore Dated : 23.09.2022 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY
Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore
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Bhopal Switchgears Pvt. Ltd. ITA No.591/Ind/2019 Assessment year 2012-13
Date of taking dictation 2. Date of typing & draft order placed before the Dictating Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the fair order is placed before the Dictating Member for pronouncement 5. Date on which the file goes to the Bench Clerk 6. Date on which the file goes to the Head Clerk 7. Date on which the file goes to the Assistant Registrar for signature on the order 8. Date of dispatch of the Order
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