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TMI Blog2014 (2) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. Deletion made u/s 40A(2)(b) of the Act - Excess interest paid on unsecured loan – Held that:- The prevailing market rate of interest even in respect of secured loan was @12% and in respect of unsecured and unguarateeed loan the rate of interest was ranging from 15-18% - the loan taken by the assessee was unsecured, the rate of interest paid by the assessee was very much reasonable - the rate of interest paid by the assessee was reasonable and no disallowance is warranted u/s 40A(2)(b) of the Act – the findings of the CIT(A) have not been controverted by the revenue by bringing any positive material on record – thus, there is no reason to interfere with the finding of the CIT(A) – Decided against Revenue. - ITA No. 1702/Kol/2011 - - - Dated:- 2-12-2013 - Shri R.C. Sharma and Shri Mahavir Singh, JJ. For the Appellant : S/Shri P.K. Chakraborty, ld. JCIT, ld. Sr. DR For the Respondent: Shri Dev Kumar Kothari, CA,FCA, ld.AR ORDER Shri R.C. Sharma, Accountant Member This is an appeal filed by the revenue against the order passed by the ld. CIT(A), dated 18/10/2011 for the assessment year 2008-09, in the matter of order passed u/s. 143(3) of the I.T Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has deleted the disallowance of Rs.1,78,00,000/- after having the following observations :- These grounds of appeal is directed against the action of the AO in disallowing the loss of Rs.1,78,00,000/- on account of sale of some of paintings to FRL. In relation to these grounds of appeal, the appellant has filed a detailed written submission as above. Appellant has also filed copy of Show Cause Notice (SCN) issued by the AO and reply thereto filed by the appellant and other documents and evidences all of which have also been filed before the AO. During the course of hearing to make further enquiries appellant was asked to furnish some more documents and information, which have been filed and as advised, the appellant has also forwarded a copy of the same to the AO. AO was given opportunity of hearing by issue of notice and also by specific letter to offer his comments on further documents filed by the appellant and to make his representations by 12.10.11 and the case was fixed on 14.10.11 but neither any written submission has been sent nor the learned AO has made appearance till the next and final hearing on 18.10.11 I have carefully perused the Show Cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 3 and concise ground no. 2) which appellant suffered in some of paintings sold to FRL. It is apparently observed that the AO has disallowed the loss without proper understanding of business aspects and with a biased mind by sheer surmise and conjecture as rightly pointed out by the appellant in grounds of appeal and written submission. The AO has not brought any evidence that the market price of those paintings was higher than the price at which those paintings were sold to the highest bidder (FRL) or that the appellant earned any consideration over and above disclosed in its accounts. The A/R has shown that the reserved price of all items on block for sale including own stock and paintings of other parties (consignment sale) many items in which case reserve price was lower than cost, was displayed in physical and electronic catalogues which were well circulated well in advance from the date of auction. The auction was well advertised and also attended by interested parties. Since there were no other bidders even at such low price, is clear enough to show that the price of those paintings was indeed lower due to falling popularity or other reasons. Therefore, to book a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck at market value whichever was lower than cost. Besides appellant could have deferred sale of paintings to highest bidder ( FRL) in which it earned profit of Rs.2.21 crore in some cases price realized was much more than reserved price because of interest of buyers in those paintings. Therefore, apparently it is not a case of tax planning or tax avoidance by selling some paintings at loss as alleged by the AO. It has also been brought on record that the purchaser FRL is not a person covered by section 40A (2) (b). Even if it is an associate concern having some common shareholders or directors or by having a common part of its name EMAMI, genuine transactions between associates or related parties at market price determined in open auction, cannot be disregarded merely because in some transactions there is loss. Piecemeal approach adopted by the AO in accepting and assessing profit transactions and disregarding loss transactions cannot be adopted to assess total income. As noticed earlier and as argued by the appellant, there is no case of tax planning as alleged by the AO, however, even if there be some element of tax planning it is acceptable as the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks was also in range of 14.75-15.50% during the previous year. The documents in respect of the above loan transactions of other parties were also submitted to the AO and he was given an opportunity. However, AO has not sent any comments or objections. During hearing the learned A/R also stated that in case of unsecured and unguaranteed loans the rate of interest is usually PLR + 2 to 4% and such loans are granted by banks for very small amount as personal loans against security of post dated cheques and repayable in EMI. Thus, rate of interest for unsecured and unguaranteed loans from bank was in range of 17-19% payable monthly in EMI. In view of the totality of facts and particularly considering that loans were unsecured and unguaranteed loans, I am of the view that the AO was not justified to assume reasonable rate of interest @12% and in disallowing interest paid above 12%. The AO has not brought anything on record to suggest that there were willing money lenders who could lend capital @ 12% to the appellant or that appellant could have borrowed capital @12%. Therefore, disallowance of Rs.18,93,568/- is not based on any tangible evidence and is directed to be delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out from the doubts raised by the AO by showing net profit of Rs. 43.19 lakh (Rs..2.21 crores profit Rs.1.78 crore loss), which it actually earned from sale of paintings to the very same party i.e. M/s. Emami Frant Ross Ltd. The detailed findings recorded by the ld.CIT(A) as reproduced above have not been controverted by the ld.DR by bringing any positive material on record, accordingly, we do not find any reason to interfere with the order of the ld.CIT(A) in deleting the loss. Accordingly, we uphold the loss. 8. With respect to disallowance of interest paid in excess of @ 12% u/s. 40A(2)(b) of the I.T Act 1961, we find that prevailing market rate of interest even in respect of secured loan was @12% and in respect of unsecured and unguarateeed loan the rate of interest was ranging from 15-18%. Since the loan taken by the assessee was unsecured, the rate of interest paid by the assessee was very much reasonable. The detailed finding has been recorded by the ld.CIT(A) at para 5.3 for coming to the conclusion that the rate of interest paid by the assessee was reasonable and no disallowance is warranted u/s. 40A(2)(b) of the Act. The findings so recorded by the ld.CIT(A) as reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X
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