M/S.EMPEE CREDIT CORPORATION,CALICUT vs. THE ACIT, CALICUT

Per GEORGE GEORGE K.,JUDICIAL MEMBER:

This appeal, at the instance of the assessee, is directed against the order of the

CIT(A), Kozhikode dated 06/10/2016. The relevant assessment year is 2012-13.

interest paid to related concern amounting to Rs.8,99,190/- by invoking the

provisions of sec. 40A(2) is justified or not.

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The assessee is a partnership firm engaged in the wholesale distribution of

ITC products. For the assessment year 2012-13, the return of income was filed

on 10-08-2012 declaring, total income of Rs. 10,56,080/-. The assessment was

completed vide order dated 28/01/2015 u/s. 143(3) of the I.T. Act. In the

assessment completed, the Assessing Officer had disallowed a sum of

Rs.8,99,190/- being excessive interest paid to related party’s concern. The

relevant finding of the Assessing Officer reads as follows:

“4. I have considered the contention of the learned AR. The similar case was discussed in the case of the assessee for the AY 2009-10 and assessment was completed after disallowing the interest paid over and above 12% to M/s. MP & sons as excessive. The appeal filed by the as against the order is pending for disposal. I have no other reason to deviate the decision taken by my predecessor. I have gone through the details furnished by the assessee and after taking into consideration all of the above the assessment is completed as under:

before the first appellate authority. The CIT(A) confirmed the addition and

dismissed the appeal filed by the assessee.

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Tribunal. The Ld. Counsel for the assessee reiterated the submissions m ade

before the IT authorities. The Ld. DR on the other hand relied on the findings of

the Assessing Officer and the CIT(A).

the instant case, the assessee was paying interest @ of 14% on the credit

balance to the partners. These credit balances were withdrawn from the

partners’ account and were given to the related concern, namely, M/s. Maneklal

Purushotham & Sons. M/s. Maneklal Purushotham & Sons, in turn, advanced

the money to the assessee-firm at a higher rate of interest at 19.5%. The

CIT(A) in the impugned order had reproduced the current account of the

partners of the assessee-firm. The CIT(A) has given a categorical finding that the

money kept in the current account of the partners which were entitled to interest

of only 14%, were withdrawn and reinvested in the assessee-firm through the

related concern at an interest rate of 19.5%. Had the partners’ capital account

not been withdrawn, the assessee would have been liable only for interest at a

rate of 14%. By withdrawing from the partners’ capital account and placing

these funds with the related party HUF and thereafter advancing to the assessee

as loan for higher rate of interest at 19.5% is only a devise/ruse to divert the

assessee’s income to related party namely, HUF. Therefore, invoking the

provisions of section 40A(2) and disallowing interest payment in the relevant

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assessment year is justified. Hence, orders of the I.T. authorities are confirmed.

It is ordered accordingly.

sd/- (GEORGE GEORGE K.) JUDICIAL MEMBER

Place: Kochi Dated: 21st April, 2017 GJ Copy to: 1. M/s. Empee Credit Corporation, Silk Street, 8/189, Calicut-673 082. 2. The Assistant Commissioner of Income-tax, Circle-1(1), Calicut. 3. The Commissioner of Income-tax(Appeals), Kozhikode. 4. The Pr. Commissioner of Income-tax, Kozhikode. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin