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TMI Blog2014 (5) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... g regard to the market rate of interest, which was a condition precedent for making a disallowance in terms of section 40A(2)(a) of the Act. In this case, assessee pointed out before the CIT(A) that the loans raised from M/s Thane Janta Sahakari Bank Ltd. and ICICI Bank were on account of a cash credit facility and fo7r acquisition of car respectively. Both the loans were secured against assets and on the contrary, borrowing from M/s Gajara Finance was unsecured and this aspect clearly showed that the terms and conditions of the two borrowings were not similar. In-fact, this aspect also justifies the interest paid to M/s Gajara Finance at a rate higher than that paid to the banks. This aspect of the matter has not been controverted by the learned Departmental Representative before us, and continues to hold the field. Therefore, considering the aforesaid aspects and in view of the discussion of the CIT(A) which we have extracted above, Revenue has to fail on this Ground. Disallowance out of interest expenditure by invoking section 40A(2)(b) - Held that:- The recipient organization to whom assessee has made the impugned payments. In order the CIT(A) has brought out the intended be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing of Gold, Silver, Stone Diamond ornaments. During the previous year relevant to the assessment year under consideration, there was a survey action u/s 133A of the Act conducted in the business premises of the assessee on 01.11.2007. In the course of survey, assessee disclosed an income of ₹ 50,32,006/- as additional income for the assessment year under consideration. Subsequently, assessee filed a return of income for assessment year 2008-09 on 29.09.2008 declaring an income of ₹ 1,12,35,700/- which was subject to scrutiny assessment. In the assessment finalized u/s 143(3) of the Act dated 24.12.2010, the total income was determined at ₹ 1,28,36,380/- after making certain additions/disallowances which were a subject-matter of appeal before the CIT(A). The CIT(A) allowed partial relief, against which the Revenue is in appeal before us in terms of the abovestated Grounds of Appeal. 5. By way of the Ground of Appeal No.1, Revenue is aggrieved with the action of the CIT(A) in deleting an addition of ₹ 2,65,200/- which was made by the Assessing Officer on account of undervaluation of stock of Gold. In this context, brief facts are that the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no interference is required in the order of the CIT(A) because he has allowed relief considering the trade pra4c tices, whereby the value of Gold in the ornaments manufactured, has been adjusted on account of impurities, alloy mixing, soldering joints, etc., whereas the Assessing Officer had adopted the rate of pure Gold. Nothing has been brought on record by the Revenue to establish any error in the approach of the CIT(A) in reducing the valuation on account of impurities, etc.. Accordingly, the action of the CIT(A) is hereby affirmed and the Revenue fails in its Ground of Appeal No.1. 9. The second Ground of Appeal is on account of an addition of ₹ 2,75,000- made by the Assessing Officer on account of errors and omissions, and Minor Stock Difference in Silver Diamond. The Assessing Officer and the learned Departmental Representative has justified the addition on the ground that such amount was surrendered as an additional income by the assessee at the time of survey but the same was not offered in the return of income filed subsequently. 10. We find that the CIT(A) has deleted the addition on the ground that such disclosure was made by the assessee without referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,229/- was allowed by the AO as deduction @ 13% and ₹ 7,09,881/- was disallowed being unreasonable. The AO's action is primarily based on the fact that the said person is covered u/s 40A(2)(b). He has not considered the relevant facts that this was an unsecured loan and obtained by the assessee to meet its business needs. Section 40A(2) has empowered the AO to examine the payments invoking relatives, Director, partner or any other person having substantial interest in the business of the payer from the point of view of reasonableness. Therefore, in case of payments that are covered under 40A(2), the onus is on the Department to prove that the value of the amount paid for the services or goods, etc. to such persons is excessive or unreasonable. It is settled position 6 of law that the legitimate business needs of an assessee to make such payments for the goods or services is not to be judged from the point of view of a Revenue Officer but form the point of view of a businessman 129 ITR 105 (Guj.). Therefore, in judging unreasonableness or excessiveness of a particular payments for the purpose of section 40A(2)(a) it is necessary that one should keep in mind the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Gajara Finance at a rate higher than that paid to the banks. This aspect of the matter has not been controverted by the learned Departmental Representative before us, and continues to hold the field. Therefore, considering the aforesaid aspects and in view of the discussion of the CIT(A) which we have extracted above, Revenue has to fail on this Ground. We hold so. 18. In the result, the appeal of the Revenue for assessment year 2008-09 is dismissed. 19. In appeal for assessment year 2009-10, the first issue is with regard to a disallowance out of interest expenditure of ₹ 20,03,823/- by invoking section 40A(2)(b) of the Act. It was common point between the parties that the said issue is similar to what has been considered by us by way of Ground of Appeal No.3 in Revenue s appeal for assessment year 2008-09 in the earlier paragraphs. Our earlier decision shall apply mutatis-mutandis in assessment year 2009-10 also. Accordingly, the Revenue fails on this aspect. 20. The second Ground in this appeal is with regard to the action of the CIT(A) in deleting an addition of ₹ 4,00,000/-. In brief, the facts are that the assessee had made a payment of ₹ 4,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure in question. Therefore, this payment has to be viewed in the larger context of business interest or expediency. It is also a relevant factor to note that the Board of Directors of the assessee company is managed by persons from the jain sect. Therefore, the assessee s membership of the JITO, therefore, has provided it with a platform to interact with entrepreneurs and to further its business interest. Payment of entry fee for becoming a member of a sports club was held to be a business expenditure and allowed in the case of Gujarat State Export Corporation Ltd. vs. CIT, 209 ITR 649 (Gujarat). 6.3.3 On going through the above facts and circumstances it is found that the appellant has made the contribution for the purpose of wholly and exclusively growth of its business and it was actually incurred. In view of these facts and circumstances and the position of law, the impugned expenditure of ₹ 4,00,000/- is allowable and therefore allowed u/s 37(1) of the I.T. Act, 1961. The impugned disallowance is, therefore, deleted. The AO is directed accordingly. This ground of appeal is allowed. 21. Against the aforesaid decision, the learned Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X
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