Commissioner of Income Tax vs Shiv Kumar

This appeal is directed against the order dated January 20, 2012, passed by the income tax Appellate Tribunal, New Delhi, in I.T.A. 3247/Del/2010 in respect of the assessment year 2007-08. By virtue of our order dated January 2, 2013, we had directed issuance of notice limited to the question of disallowance of interest u/s 40A(2) of the income tax Act, 1961 (hereinafter referred to as "the said Act"). We have heard the learned counsel for the parties after notice.

The Assessing Officer had made an addition of Rs. 18,57,189 u/s 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.

The plea of the Revenue is that the Assessing Officer had rightly contended and concluded that the rate of interest in excess of 12 per cent., 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 per cent.

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 per cent. It is only because the loans were taken from the relatives that lower rates of interest ranging from 15 per cent. to 18 per cent. were agreed upon.

The learned counsel for the respondent-assessee also drew our attention to a decision of this court in the case of The Commissioner of Income Tax Vs. Oriental Structural Engineers P. Ltd., , wherein this court held that whether the 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 Commissioner of Income Tax Vs. Dr. R.N. Goel, . Reliance had been placed in that decision on an earlier Supreme Court decision in the case of Upper India Publishing House (P) Ltd. Vs. Commissioner of Income Tax, Lucknow, . In Upper India Publishing House (P.) Ltd. (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.

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. Consequently, no interference is called for. The appeal is dismissed. There shall be no order as to costs.