Saturday, August 24, 2013

income tax case laws

IT-Issue of unreasonableness or excessiveness of an exp. under sec. 40A(2) is a question of fact


IT : Issue of expenses being excessive or not in terms of section 40A(2) is not a question of law but is a question of fact
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[2013] 34 taxmann.com 171 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Shiv Kumar*
BADAR DURREZ AHMED AND R.V.EASWAR, JJ.
IT APPEAL NO. 696 OF 2012
APRIL  8, 2013 
Section 40A(2), read with section 260A, of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments [Question of fact] - Assessment year 2007-08 - Assessing Officer made addition under section 40A(2) on account of excessive interest having been paid by assessee to his relatives - Commissioner (Appeals) and Tribunal deleted addition - Apex Court in case of Upper India Publishing House (P.) Ltd. v. CIT [1979] 117 ITR 569/1 Taxman 365 had observed that question whether a particular expenditure or loan was excessive or unreasonable was essentially a question of fact and did not involve any issue of law - Whether in view of above authoritative pronouncement by Apex Court question raised by revenue was a question of fact which had been determined finally by virtue of impugned order of Tribunal, thus no interference could be called for - Held, yes [Paras 6 & 7] [In favour of assessee]
CASE REVIEW
 
Upper India Publishing House (P.) Ltd. v. CIT [1979] 117 ITR 569/1 Taxman 365 (SC) (para 7) followed.
CASES REFERRED TO
 
CIT v. Oriental Structural Engg (P.) Ltd. [2010] 195 Taxman 362 (Delhi) (para 6), CIT v. R.N. Goel [2008] 177 Taxman 374 (Delhi) (para 6) and Upper India Publishing House (P.) Ltd. v. CIT [1979] 117 ITR 569/1 Taxman 365 (SC) (para 6).
N.P. Sahni for the Appellant. Salil KapoorVikas Jain and Rakesh Kumar for the Respondent.
JUDGMENT
 
1. This appeal is directed against the order dated 20.01.2012 passed by the Income Tax Appellate Tribunal, New Delhi in ITA 3247/Del/2010 in respect of the assessment year 2007-08.
2. By virtue of our order dated 02.01.2013, we had directed issuance of notice limited to the question of disallowance of interest under Section 40A(2) of the Income Tax Act (hereinafter referred to as ''the said Act''. We have heard the learned counsel for the parties after notice.
3. The Assessing Officer had made an addition of Rs. 18,57,189/- under Section 40A(2) of the said Act on account of excessive interest having been paid by the respondent / assessee to his relatives. There is no dispute that the loans were taken from persons who fell within the description of relative? of the assessee as employed in Section 40A(2)(b)(i) of the said Act. The only issue that is sought to be raised by the revenue is that the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal have erred in deleting the addition of Rs. 18,57,189/- made by the Assessing Officer.
4. The plea of the revenue is that the Assessing Officer had rightly contended and concluded that the rate of interest in excess of 12%, which had been paid to the relatives of the assessee, was excessive and, therefore, the Assessing Officer was well within his rights to have added the amount of Rs. 18,57,189/- by way of the difference in excess of the rate of interest of 12%.
5. On the other hand, the learned counsel for the respondent /assessee contended that these loans, which had been taken by the assessee from the relatives, were unsecured loans. He submitted that by the very nature, such loans entail a much higher rate of interest. He submitted that banks would not lend money without security and if unsecured loans are raised in the market, the rate of interest would be much higher than 18%. It is only because the loans were taken from the relatives that lower rates of interest ranging from 15% to 18% were agreed upon.
6. The learned counsel for the respondent / assessee also drew our attention to a decision of this Court in the case of CIT v. Oriental Structural Engg (P.) Ltd: [2010] 195 Taxman 362 (Delhi), wherein this Court held that whether expenses claimed by an assessee were excessive or not under the provisions of Section 40A(1) of the said Act, was essentially a question of fact. This Court had placed reliance on an earlier decision in the case of CIT v. R. N. Goel: [2008] 177 Taxman 374 (Delhi).Reliance had been placed in that decision on an earlier Supreme Court decision in the case of Upper India Publishing House (P.) Ltd v. CIT [1979] 117 ITR 569/1 Taxman 365 (SC). In Upper India Publishing House (P) Limited (supra), the Supreme Court observed that the question whether a particular expenditure or loan was excessive and unreasonable, was essentially a question of fact and did not involve any issue of law.
7. In view of the authoritative pronouncement by the Supreme Court on the issue of expenses being excessive or not in terms of Section 40A(2) of the said Act, we feel that the present question sought to be raised by the revenue is not a question of law but is a question of fact which has been determined finally by the Tribunal by virtue of its impugned order.
8. Consequently, no interference is called for. The appeal is dismissed. There shall be no order as to costs.
Lata

*In favour of assessee.
Arising out of ITAT, New Delhi in IT Appeal No. 3247 (Delhi) of 2010, dated 20-1-2012.

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