Mrs Kusum Jain,Ambala Cantt. Vs The ITO , Ward-4,Ambala
July, 12th 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES `SMC' CHANDIGARH
BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT
ITA No. 651/Chd/2012
Assessment Year: 2008-09
Mrs Kusum Jain, Vs The ITO , Ward-4,
Ambala Cantt. Ambala
PAN No. ABUPJ3110F
Appellant By : Shri Tej Mohan Singh
Respondent By : Shri N.K. Saini
Date of hearing : 10.07.2012
Date of Pronouncement : 10.07.2012
This appeal filed by the assessee is directed against the order of
CIT(A), Rohtak dated 16.3.2012 relating to assessment year 2008-09.
2. Ground Nos. 1 & 2 of the appeal read as under:-
1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as
well as on facts in upholding the disallowance Rs.26,178/- being l/5th of the
car expenses claimed at Rs.1,30,894/- which is arbitrary and unjustified in
as much as the car is predominantly used for the business and in any case
the disallowance upheld is highly excessive and as such the disallowance
upheld is arbitrary & unjustified.
2. That the Ld. Commissioner of Income Tax (Appeals) has further erred
in upholding the disallowance of Rs.4,862/- being 1/5th of the telephone
expenses and depreciation on mobile which is again arbitrary and
3. Briefly stated the facts of the case are that the assessee is a consignee
sale agent of Systopic Laboratories Ltd. Delhi and M/s Sarabhai Chemicals,
Baroda. While framing the assessment, the Assessing Officer made
disallowance of Rs. 26,178/- being 1/5 t h of Car expenses and Rs. 4,862/-
being 1/5 t h of the telephone expenses on account of personal use by the
assessee. The assessee claimed car expenses at Rs. 1,30,894/- and telephone
expenses at Rs. 21,827/-. The Asses sing Officer disallowed 1/5 t h of the
above expenses on account of personal use by the assessee.
4. On appeal, the CIT(A) upheld the action of the Assessing Of ficer and,
hence, the assessee is in appeal before the Tribunal against the order of
5. I have heard the rival submissions and have also perused the materials
available on record. Shri Tej Mohan Singh, Ld. Counsel for the assessee
submitted that the assessee is a lady and business is managed by employees
and, therefore, the element of personal use of car and telephone is not there.
Alternatively, Shri Tej Mohan Singh, Ld. Counsel for the as sessee submitted
that the disallowance made by the Assessing Officer and confirmed by
CIT(A) is on higher side. In the instant case, the Assessing Officer has made
ad hoc disallowance which appears to be excessive and on the higher side.
Considering the nature of assessee's business as well as facts and
circumstances of the present case, I think the disallowance of 1/10 t h of the
car expenses and 1/10 t h of the telephone expense will meet the ends of
justice. The Assessing Officer is directed to recompute the income of the
assessee accordingly. Ground Nos.1 & 2 of the appeal are allowed partly.
6. Ground No.3 of the appeal is directed against the action of CIT(A) in
upholding the disallowance of Rs. 9,402/- on account of local conveyance,
entertainment, staff welfare and packing material expenses. The assessee
claimed Rs. 6,315 on account of local conveyance, Rs. 15,545/- on account of
entertainment, Rs. 12,535/- under the head staff welfare and Rs. 12,615/- on
account of packing material expenses. The Assessing Officer disallowed
1/5 t h of these expenses on the ground that these payments have been made
through cash and were petty but were not properly vouched. The Assessing
Officer observed that the Ld. Representative of the assessee vide order sheet
entry dated 31.8.2010 agreed for 1/5 t h disallowance out of the above
expenses. On appeal, the CIT(A) upheld the action of the Assessing Officer
stating that having agreed to the disallowance of Rs. 9,402/- being 1/5 t h of
these expenses before the Assessing Of ficer, the AR can not take a u-turn
without contesting the veracity of the statement of the Assessing Officer.
7. I have heard the rival submissions. In my opinion, the orders passed
by the lower authorities on an agreement can not give rise to the grievances
and the same cannot be agitated in appeal before the Tribunal. The view
taken by me is duly supported by following judgments:-
i) Banta Singh Kartar Singh v CIT, Patiala (1980) 125 ITR 239(P &H)
ii) Jivatlal Purtapshi v CIT, Bombay (1967) 65 ITR 261 (Bom)
8. In my opinion, the assessee agreed to the impugned addition before
both the authorities below, therefore, cannot be held to be aggrieved by these
orders. Consequently, I dismiss ground No.3 the appeal.
9. Ground No. 4 of the appeal reads as under:-
4. That the Ld. Commissioner of Income Tax (Appeals) has further erred in
upholding the addition of Rs.24,000/- for interest chargeable at 16% on a loan
of Rs. 1,50,000/-- advanced to her sister-in-law which is arbitrary & unjustified
in as much as the assessee's own capital is much more than the amount
advanced and no part of the amount taken on interest has been advanced as
10. At the time of hearing of the appeal, Shri Tej Mohan Singh, Ld.
Counsel for the as sessee did not press for this ground of appeal and
accordingly, I dismiss ground No.4 of the appeal as not pressed.
11. Ground No.5 of the appeal reads as under:-
5. That the Ld. Commissioner of Income Tax (Appeals) has further erred in
upholding the addition of Rs.79,065/- on account of excess of interest
more than 12% having been paid to S/Shri Shreayan Jain and Shrenik
Jain invoking the provisions of section 40A2(b) of the Act in as much as
section 40A2(b) of the Act is not attracted in these two cases and
nowhere it has been explained how they are covered under that section and
as such the addition upheld is arbitrary & unjustified.
12. The Assessing Officer disallowed a sum of Rs. 79,065/-, observing as
3(iv) Further a perusal of the interest paid on Unsecured Loans it was noticed
that interest of approximate 19.5% paid to Shreayan's Jain & 15% to Shri
Shrenik Jain both nephew and close relative of the assessee and are covered u/s
40A2(b) of the IT Act. As such excess of interest of more than Rs. 12% paid to
both these persons being close relative is hereby disallowed which is under
Interest Allowable Paid Difference
Shreyan's Jain 12% 105203/- 42618/-
Shrenik Jain 120761/- 157208/- 36,447/-
13. On appeal, the CIT(A) confirmed the addition for the reasons stated in
para 8.2 of the impugned order.
14. I have heard the rival submissions. The main contention of Shri Tej
Mohan Singh, Ld. Counsel for the assessee was that the assessee has taken
unsecured loans from S/Shri Shreayan Jain and Shrenik Jain, her nephews on
which interest is paid / claimed and allowed from year to year. He further
submitted that the rate of interest paid and accepted on loans up to
assessment year 2007-08 has been 21% as per prevalent market and bank
rates at that time. According to Shri Tej Mohan Singh, Ld. Counsel for the
assessee even the bank charging interest rate ranges from 15 to 18% and was
about 18.50% besides there are other incidental charges. Furthermore, when
a loan is taken from the bank, security has to be furnished besides complying
with other so many formalities. The bank charge interest f rom 11% to 14%
on monthly compounding basis on trade advances sanctioned to business
concerns and besides this processing fees, insurance and incidental charges,
interest charges, cheque book issue charges and other charges as per Bank
rules have to be incurred from time to time which would mean more than
18% as simple interest. In my considered opinion, the disallowance u/s
40A(2)(b) of the Act can be made only to the extent the payment for the
services is excessive or unreasonable vis-a-vis the market price of such
services but what is essentially required is that the market price of these
services is established and then amount paid in excess of such market price
is to be disallowed. In the instant case, no such findings are given by the
Assessing Officer as well as the CIT(A). Thus, keeping in view the entire
facts and circumstances of the present case, interest paid by the assessee to
her nephews is not excessive and unreasonable having regard to the fair
market value of the goods, services or facilities for which the payment is
made on the legitimate needs of the business and, hence, no disallowance u/s
40A(2)(b) of the Act is required to be made. I may also add here that the
Assessing Officer has not brought on record any proper material or cogent
reason to justif y the partial disallowance of interest paid on unsecured loans
taken by the assessee from Shri Shreayans Jain and Shri Shrenik Jain.
Considering the entire facts and circumstances of the present case, as well as
settled legal position, I allow ground No.5 of the appeal and delete the
addition of Rs. 79,065/-.
15. Ground No.6 of the appeal relates to charging of interest u/s 234D of
the Income Tax Act.
16. At the time of hearing of the appeal, Shri Tej Mohan Singh, Ld.
Counsel for the assessee submitted that this ground of appeal is consequential
in nature. I hold accordingly.
17. In the result, appeal is allowed partly.
Order Pronounced in the Open Court on this 10 t h July, 2012.
VI CE PRESIDENT
Dated : 10 t h July, 2012
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR