(Per : HONOURABLE MS JUSTICE SONIA GOKANI) Revenue has challenged the order of the Income Tax Appellate Tribunal dated 30th April 2010 proposing following questions for our consideration :
"A. Whether the Appellate Tribunal is right in law and on facts in allowing deduction u/s.80IA of Rs.25,77,177/-?
B. Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of Rs.77,09,880/- made u/s.40A(2)(b) ?"
Heard learned Senior Counsel Mr.Manish Bhatt for the Revenue and with his assistance, examined the papers.
It emerges from the record that for the assessment year 2002-03, the assessee's claim of deduction of Rs.25,77,177/- under section 80IA was disallowed by the Assessing Officer on the ground that the assessee company had already started production prior to the insertion of section 80IA i.e. prior to the year 1984. It is further observed that the assessee company did not produce any material to suggest that there was any new industrial undertaking and that it produced articles which were prohibited under the Eleventh Schedule. Accordingly, the Assessing Officer deleted the deduction and made addition.
When challenged before the CIT(Appeals), it set aside the order of the Assessing Officer on the ground that in the assessee's own case, this had been decided in favour of the assessee.
When challenged by the Revenue before the Tribunal, it upheld the order of the CIT(Appeals), by relying on the decision of this Court reported in 282 ITR 568. This Court decided the issue by holding that the use of tobacco which was used in the input do not retain its identity once the beedies are rolled and in relation to the assessee's status as unit of small scale industrial undertaking, the Court decided the issue in assessee's favour by holding that while ascertaining the monetary limit laid down in the provision, all assets of business be not taken into consideration, upholding the version of the Tribunal treating the activity carried out by the assessee amounting to manufacture of beedi. The Tribunal in the instant case has decided the issue basing it on the decision of this Court. With nothing more having produced for this Court to take a different view, the issue requires no further consideration and is not entertained.
Second issue concerns disallowance of Rs.77,09,880/- made under section 40A(2)(b) of the Income Tax Act, 1961. It appears that the Assessing Officer found the interest paid to the persons at the rate of 22% excessive and unreasonable and therefore, the entire amount of Rs.77 lacs (rounded off) was disallowed. When challenged by the assessee before the CIT(Appeals), on the ground that loan was taken for the purpose of business, and borrowing had not been doubted by the Assessing Officer, majority of them being old as also the fact that the rate of interest paid by the assessee-respondent for the past 10 years was not objected to at any point of time, this disallowance was not sustained.
When challenged before the Tribunal, by a detailed order, it upheld the order of CIT(A). It would be apt to reproduce the findings of the Tribunal, as under:
"13.
We have heard the rival submissions and gone through the facts and circumstances of the case. We find that these loans were borrowed by the assessee for the purpose of business in earlier years i.e. since Assessment Year 1992-93. No such disallowance has been made in the past. This fact is not controverted by either the Assessing Officer or the learned DR. It is a fact that the rate of interest paid by the assessee on unsecured loan vis-a-vis the rate of interest in secured loan obtained from the bank and financial institutions, the rate of interest to associate concern is little higher but the amounts borrowed from bank are secured and hence carries lesser risk. Even the bank interest is almost at 19.5% and if we calculate the overhead expenses i.e. the registration charges, stamp duty charges, expenses to be incurred for submitting stock statements, etc. to the bank, the bank interest will automatically increase to a certain level. Therefore, the comparison of rate of interest paid by the assessee on unsecured loan with the secured loan is incorrect. It is also settled law that the decision how the business should be carried on is the prerogative of the assessee and the Assessing Officer cannot dictate the terms as to how the business should be carried on. While considering the claim under section 36(1)(iii) what is to be examined is whether the amount is borrowed for the purpose of business or not. Since the amount is borrowed in earlier years at a stipulated rate of interest and which is still utilized for the purpose of business, the interest rate could not have been renegotiated. Even the lending rate by banks in respect of secured loan is as high as 19.5%. Therefore, rate of interest, paid by the assessee is quite reasonable having regard to the fair market value of such services. The Assessing Officer has not compared the rate of interest on unsecured loans. Therefore, the Assessing Officer was incorrect in restricting the interest payable to the extent of 19.5% only. Since the rate of interest paid by the assessee is reasonable, the order of CIT(A) ;is confirmed deleting the disallowance."
The issue is essentially based on facts presented before the adjudicating authorities. The reasons given by the Tribunal are sound having no error nor any perversity. The issue since is in the realm of facts, proposing no question of law much less substantial question of law, resultantly, Tax Appeal is dismissed.
(Akil Kureshi J.) (Ms.Sonia Gokani, J.) (vjn) Top