Asst. Commissioner of Income Tax vs Creative Processing Ltd.

K.S. Jhaveri, J.—The question of law involved in these appeals are similar, therefore, they are being heard and decided together by this common judgment.

In Tax Appeal No. 1126 of 2007, the revenue has challenged the order dated 28.02.2007, passed by the Income tax Appellate Tribunal, Ahmedabad (for short "the Tribunal") in ITA No. 2878/Ahd/2006, whereby the appeal preferred by the assessee was allowed by the Tribunal.

In Tax Appeal No. 814 of 2009, the revenue has challenged the order dated 05.09.2008, passed by the Tribunal in ITA No. 3325/Ahd/2007, whereby the appeal filed by the revenue was dismissed by the Tribunal.

The facts of Tax Appeal No. 1126 of 2007 are that the assessee had filed its return for the Assessment Year 2003-2004, declared total income at Rs. 25,76,787/- After scrutiny, the Assessing Officer passed order under Section 143(3) of the Income Tax Act on 7th February 2006 and determined total income of the assessee at Rs. 39,42,350/-. Against the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) vide order dated 16th October, 2006 dismissed the said appeal of the assessee. Being aggrieved and dissatisfied with the order of the CIT(A), the assessee again filed an appeal before the Tribunal. The Tribunal vide impugned order dated 28.02.2007 allowed the appeal of the assessee. Hence, this appeal is filed at the instance of the revenue.

The facts of Tax Appeal No. 814 of 2009 are that the assessee had filed its return for the assessment Year 2004-05, declared total income of Rs. 2,65,34,846/- including long term capital gain and business profit. During the course of assessment, the Assessing Officer noted that the assessee had obtained unsecured loans of Rs. 1,90,00,000/- from one of its group concerns and paid interest @ 18% which was much higher than the prevailing market rate. Thereafter, the Assessing Officer passed order under Section 143(3) of the Income Tax Act and made addition of Rs. 16,25,550/- on account of excess interest paid to sister concern.

5.1. Against the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) partly allowed the said appeal. Being aggrieved and dissatisfied with the order of the CIT(A), the revenue filed an appeal before the Tribunal. The Tribunal vide impugned order dated 05.09.2008 dismissed the appeal of the revenue. Hence, this appeal is filed at the instance of the revenue.

While admitting Tax Appeal No. 1126 of 2007 on 26.12.2007, the Court had formulated the following substantial question of law:-

"Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in deleting disallowance of Rs. 13,65,558/- out of interest expenditure of Rs. 36,41,487/- paid to M/s. Vareli Fabrics Private Limited ?"

While admitting Tax Appeal No. 814 of 2009 on 20.08.2010, the Court had formulated the following substantial question of law:-

"Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in deleting disallowance of Rs. 16,25,550/- out of interest expenditure of Rs. 36,57,486/- paid to M/s. Vareli Fabrics Private Limited ?"

Mr. Mehta, learned advocate for the appellant-revenue has submitted that the Tribunal has committed error in passing the impugned orders and in confirming the order of the CIT(A). He further submitted that the Tribunal has not given cogent and convincing reasons for coming to the conclusion that the reasons assigned by the CIT(A) are not legal and valid.

8.1. Learned advocate for the appellant revenue has contended that the Tribunal has not properly appreciated the fact that there was no reason for the assessee to obtain loans from the sister concern and pay higher rate of interest. Therefore, he urged that this Court may allow these appeals and answer the question raised in these appeal in favour of the revenue and against the assessee.

On the other hand, Mr. Shah, learned advocate for the respondent-assessee has supported the impugned orders of the Tribunal and submitted that the Tribunal in paragraph No. 6.1 has given cogent and convincing reasons in arriving at the conclusion. Therefore, there is no germane reason to interfere with the impugned orders of the Tribunal.

9.1. Learned advocate for the respondent further submitted that the issue involved in these appeals is covered by the decision of the Apex Court in the case of Commissioner of Income Tax, Bombay Vs. Walchand and Co. Private Ltd., .

We have heard learned advocates appearing for both the parties and perused the material on record. We have also perused the decision of the Apex Court in the case of Walchand and Co. Private Ltd. (supra), relied on by the learned advocate for the respondent assessee, wherein it is held that if the Tribunal was satisfied that the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the assessee there was no reason why the full amount expended should not have been allowed. It is open to the Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or that it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But it is not the function of the Tribunal to determine the remuneration which in their view should be paid to an employee of the assessee.

In view of the above, we are of the considered opinion that the present appeals deserve to be dismissed. Even otherwise, the Tribunal in paragraph No. 6.1. Of its order has given cogent and convincing reasons in arriving at the conclusion. We are in complete agreement with the view taken by the Tribunal.

Considering the facts of the case and also considering the principle laid down in the case of Walchand and Co. Private Ltd. (supra), we are of the considered opinion that the present appeals deserve to be dismissed and the same are accordingly dismissed. Therefore, we hold that the Tribunal was right in deleting disallowance out of interest expenditure paid to M/s. Vareli Fabrics Private Limited.