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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)                                                (Respondent)


                       Appellant By                  : Shri Tej Mohan Singh
                       Respondent By                 : Shri N.K. Saini

                       Date of hearing       : 10.07.2012
                       Date of Pronouncement : 10.07.2012





                                             ORDER


        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
                                         2


     in upholding the disallowance of Rs.4,862/- being 1/5th   of the telephone
     expenses and depreciation on mobile which is again arbitrary and
     unjustified.




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

CIT(A).




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.
                                            3


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:-
                                                   4



      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
            such loan.

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.
                                                 5


12.       The Assessing Officer disallowed a sum of Rs. 79,065/-, observing as

under:-


      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/-
                                 62585/-

      Shrenik Jain               120761/-               157208/-       36,447/-

                                                                       79,065/-



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
                                       6


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.
                                        7




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.



                                                            Sd/-

                                                        (H.L.KARWA)
                                                      VI CE PRESIDENT
Dated : 10 t h July, 2012
Rkk

Copy to:
  1.     The Appellant
  2.     The Respondent
  3.     The CIT
  4.     The CIT(A)
  5.     The DR



                            True Copy
                                                     By Order

                                                 Assistant Registrar
 
 
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