SAKET HOTELS P.LTD,MUMBAI vs. ITO 9(3)(1), MUMBAI

The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

The brief facts of the case are that the assessee company is operating the Hotel Saket Plaza at Mahabaleshwar. The assessee company paid interest @ 16% of Rs. 30,16,005/- to M/s TPH Travel Services, the proprietary concern of the Director Shri Umesh Manek against the loan received. The assessee company had paid interest @ 12% to the other directors. Further, the assessee company had received the bank loan @ 11.75%. The assessee company was asked as to why the difference of 4% i.e. 7,54,001/- should not be added back to the total income of the assessee company u/s 40A(2)(a) of the Act. In reply, the assessee company submitted that the director, Sh. Umesh Manek had taken loans from various financial institutions by mortgaging his properties @ 16% to 19%. The chart of loans raised by the Sh. Umesh Manek in support of the assessee company’s contentions was duly submitted before the AO. The A.O. considered the submissions of the assessee company but found the same to be not tenable. The A.O. observed that many of the loans were not taken in the previous year 2009-10 i.e. the assessment year 2010-11. The A.O. observed that it was a cautious decision of the Director, Sh. Umesh Manek to obtain the loan at higher rates for the financial requirements of his company and the transaction has no bearing upon the financial behavior of the assessee company. From the submission of the assessee company , the A.O. noted that the assessee company was paying ITA 6183/Mum/2013 3 the interest @ 12% to other Directors and @ 11.75% to the bank and hence the interest paid by the assessee company to its Director Shri Umesh Manek was excessive when compared to the other Directors and above the fair market value if compared with bank interest rate. The A.O. held that as per section 40A(2)(a) of the Act where the assessee company incurs any expenditure to the Director, such expenditure is excessive or unreasonable having regard to the fair market value of goods, services or facilities for which the payment is made and the same shall not be allowed as deduction. The A.O. hence treated the interest payment above 12% as excessive and unreasonable and the interest rate difference of 4% i.e. Rs. 7,54,001/- was added back to the total income of the assessee company as per the provisions of section 40A(2)(a) of the Act by the AO vide assessment orders u/s 143(3) of the Act dated 31st January, 2013.

The learned CIT(A) issued several notices to the assessee company fixing the hearing of the appeal filed by the assesee company but there was no compliance from the assessee company’s side. The learned CIT(A) observed that the assessee company is not interested in prosecuting its appeal further. Relying upon the decision of Hon’ble Supreme Court in the case of B.N. Bhattachargee & Others, 118 ITR 461 (SC) , the learned CIT(A) held that appeal does not mean only filing of memo but also pursuing the same effectively. In case the appellant does not pursue the appeal, the learned CIT(A) has inherent right to dismiss the appeal for non-prosecution. The learned CIT(A) also relied on the decision of Hon’ble Bombay High Court in the case of M/s Chemipol v. Union of India in Excise Appeal No. 62 of 2009 and in the case of Jawaharnagar Co.-Operative Housing Society Ltd. v. ITO ITA 6183/Mum/2013 4 24(3)(4) in dated 26.7.2011 and in the case of M/s Flat Coaters (I) Ltd. v. ITO in ITA No. 863/Mum/2010 dated 27.7.2011.

Aggrieved by the appellate orders dated 11-07-2013 of the learned CIT(A), the assessee company is in appeal before the Tribunal.

The learned Counsel for the assessee company submitted before us that the learned CIT(A) has passed an ex-parte order. The learned counsel made statement before the Bench that no notice of hearing from the office of learned CIT(A) has been received by the assessee company which is supported by the grounds raised by the assessee company in the memo of appeal filed with the Tribunal. The learned Counsel prayed that if opportunity is provided to the assessee company, the assessee company can prove its case on merits with substantial evidences.

The ld. D.R. also not raised any objection if the matter is set aside to the file of the learned CIT(A) for re-adjudication of the appeal.

We have considered the rival submissions and also perused the material on record. We have noticed that the assessee company has stated to have not received notice of intimation regarding the hearing in the first appellate proceedings before the learned CIT(A) and hence consequently the assessee company has stated that it could not present its case in the first appellate proceedings before the learned CIT(A) in the appeal filed by the assessee company before the learned CIT(A) and represent properly and effectively on merits its case before the learned CIT(A), which has resulted in ITA 6183/Mum/2013 5 ex-parte dismissal of the first appeal by the learned CIT(A) causing serious prejudice to the assessee company. In the interest of substantial justice and keeping in view of the facts and circumstances of the case, in our considered view, the issues arising out of appeal before the Tribunal needs to be set aside to the file of learned CIT(A) for de-novo adjudication of the issue’s after considering the submission/explanations of the assessee company on merits. The learned CIT(A) shall allow proper and adequate opportunity to the assessee company of being heard before adjudicating the appeal on merits in de-novo adjudication proceedings in accordance with principles of natural justice and in accordance with law. The assessee company is directed to appear before the learned CIT(A) and submit the relevant explanation/submissions and evidences before the learned CIT(A) in support of its defense which shall be admitted by the learned CIT(A) in accordance with law and the issue’s shall then be adjudicated on merits . We order accordingly.

In the result, the appeal filed by the assessee company in ITA N0. 6183/Mum/2013 for the assessment year 2010-11 is allowed for statistical purpose.