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Sant Singh Ram Lal 3963-B, Naya Bazar, Delhi. PIN: 110006 vs. ITO Ward-47(1) New Delhi
May, 21st 2019
                                1                     ITA No. 7831/Del/2018


                     ITA No.7831/Del/2018
                 Assessment Year: 2013-14
  Sant Singh Ram Lal             ITO
  3963-B, Naya Bazar,         Vs Ward-47(1)
  Delhi. PIN: 110006             New Delhi
  (APPELLANT)                    (RESPONDENT)

  Appellant by                      Written Submission
  Respondent by                     Sh. S. L. Anuragi, Sr. DR

  Date of hearing:                  06/05/2019
  Date of Pronouncement:            20/05/2019



  1.     This appeal filed by the assessee is directed against the
  order dated 30th October, 2018 of the CIT(A)-16, New Delhi for
  A. Y 2015-16.

  2.     The assessee in the various grounds of appeal has
  challenged the order in of the CIT(A) in restricting the allowance
  of interest on unsecured loan and depreciation.
                                   2                ITA No. 7831/Del/2018

 3.        Facts of the case, in brief, are that the assessee is a
 partnership firm engaged in the business of trading in
 Cosmetics, Shampoos and Allied items.        It filed its return of
 income on 22nd August, 2013 declaring total income of Rs.
 14,23,370/-. During the course of assessment proceedings, the
 A.O noted that the assessee has paid interest of Rs. 30,72,317/-
 to the following persons covered u/s 40A(2)(b) of the Income Tax
 Act, from whom the assessee has taken unsecured loan:-

      1.      Sri Lalit Kumar Singhal     12,53,863/-
      2.     Sri Dhruv Singal              3,13,197/-
      3.     M/s R. K. Trust               9,23,446/-
      4.     Ms. Diksha Singha             5,81,811/-
                  Total amount            30,72,232/-

4.         In absence of any satisfactory explanation given by the
assessee to justify as to why the assessee has paid interest @ 18%
to the specified persons whereas it has paid interest @ 12% to
others., the A.O following the order of his predecessor for the
preceding Assessment Year and keeping in mind the prevailing
market rate of interest, made disallowance of Rs. 4,00,000/-.
Similarly, the A.O disallowed an amount of Rs. 104313/- out of
telephone, conveyance, motor car expenses and depreciation on
motor car being probable personal use. While doing so, he has
observed that in the preceding year also similar disallowance was
                                 3                   ITA No. 7831/Del/2018

5. In appeal, the Ld.CIT (A) directed the A.O to allow interest @
13.75% i.e. an interest rate of 2% above the base rate offered by
the Bank which was 11/75%. The remaining payment of interest
to specified persons was treated by him as excessive and he
sustained to the same to that effect.     So far as the amount of
depreciation on motor car is concerned, he also upheld the action
of the A.O in absence of any log book maintained by the assessee
so as to justify that the vehicle is used exclusively for the purpose
of business and not for personal uses.      The assessee is not in
appeal for other expenses sustained by the CIT(A), therefore, we
are not concerned with the same.

6. Aggrieved of such order of the CIT (A), the assessee is in
appeal before the Tribunal.

7. None appeared on behalf of the assessee.        However, written
synopsis was filed.    I have gone through the same and after
hearing the Ld. DR.     I proceed to decide the appeal.      It is the
submission of the assessee in the written synopsis that the
assessee is carrying on the business of distributorship of
Hindustan Unilever Ltd (`HUF' for short).        While HUL takes
payment before or at the time when goods are sent, however, the
assessee has to offer credit to his customers as per practice.
Therefore, the assessee requires huge working capital.              The
assessee, therefore, borrowed funds from the relatives of partners.
It has been mentioned in the written synopsis that while taking
loan from banks, the assessee has to offer collateral security to the
                                 4                   ITA No. 7831/Del/2018

banks where as no such collateral security is required,           when
loans are taken from friends and relatives. Further rate of interest
charged by the banks depend on the financial position of the loan
taker, availability of funds etc. The rate of interest charged by the
bank for the period 1/4/2012 to 31/3/2013 is around 14.50%,
whereas the assessee in the instant case has given interest @ 15%
in two cases and in the remaining two cases, the rate of interest
was 12%. It has further been mentioned in the synopsis that the
two persons to whom interest @ 15% has been given are coming in
the 30%    tax rate and the assessee is also    paying tax @ 30%.
therefore, there is no loss to the Revenue. So far as the
disallowance of depreciation is concerned, there is no argument by
the assessee in the written synopsis.

8. The Ld. DR on the other hand submitted that since the
assessee has paid interest @ 15% to certain specified persons
where as interest paid to others is 12%, therefore, the CIT(A) has
very reasonably granted part relief to the assessee and, therefore,
the assessee should not have further grievance.

9.    I have considered the rival arguments made by both the
sides and perused the orders of the authorities below. It is the
submission of the assessee in the written synopsis that it has paid
interest @ 15% only to Ms. Diksha Singhal and R. K. Trust where
as in the other two cases such interest has been paid @ 12%. It is
also the submission of the assessee in the written synopsis that
                                 5                    ITA No. 7831/Del/2018

rate of interest charged by the bank for the period from 1/4/2012
to 31/3/2013 was around 14.50%.

10.      I find from the assessment order that the A.O has
observed that the assessee has paid interest @ 18% for which he
disallowed an amount of Rs. 4 lacs being the excess payment of
interest made to the specified person u/s 40A(2)(b).      I find some
force in the submission of the assessee in the written synopsis
that for obtaining loan from bank, the assessee has to offer some
collateral security where as for obtaining loans from friends and
relatives, no such security is required. Since the assessee has
paid interest @ 12% to two specified persons and interest @ 15%
to the other two specified persons where as the bank rate of
interest during the period from 1/4/2011 to 31/3/2013 is around
14.5%, therefore no disallowance is called for. However, the above
facts need verification at the level of the A.O I, therefore, deem it
proper to restore the issue to the file of the A.O with the directions
to verify that the assessee has paid         interest @ 12% to two
specified persons and @ 15% to the other two specified persons.
He has to verify as to whether the rate of interest charged by the
bank for the period from 1/4/2012 to 31/3/2013 was around
14.5%.    If the above submission made by the assessee in the
written synopsis has found to be correct then no disallowance is
called for. The first issue raised by the assessee in the grounds of
appeal is allowed for statistical purpose.
                                               6                        ITA No. 7831/Del/2018

 11.          So far as, the disallowance of depreciation is concerned,
 there was no argument in the written synopsis for which the order
 of the CIT (A) on this issue is upheld.

 12. In the result, the appeal of the assessee is partly allowed for
 statistical purposes.

The decision was pronounced in the open court at the time of
hearing itself i.e., on 20.05.2019.

                                                         (R.K PANDA)
                                                    ACCOUNTANT MEMBER

Date:- 20 .05.2019

Copy forwarded to:

1.                              Appellant
2.                              Respondent
3.                              CIT
4.                              CIT(Appeals)
5.                              DR: ITAT

                                                               ASSISTANT REGISTRAR
                                                                ITAT NEW DELHI

          Date of dictation                                       08.05.2019
          Date on which the typed draft is placed before the       08.05.2019
          dictating Member
          Date on which the approved draft comes to the
          Date on which the fair order is placed before the
          Dictating Member for Pronouncement
          Date on which the fair order comes back to the Sr.         20.05.2019
          PS/ PS
          Date on which the final order is uploaded on the          20.05.2019
          website of ITAT
          Date on which the file goes to the Bench Clerk              21.05.2019
                                     7                   ITA No. 7831/Del/2018

Date on which file goes to the Head Clerk.

The date on which file goes to the Assistant Registrar
for signature on the order
Date of dispatch of the Order
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