Case Number: ITA 813/DEL/2020
Appellant: Aromatics India Private Limited, New Delhi
Respondent: ACIT, Circle-3(1), New Delhi
Assessment Year: 2015-16
Case Filed on: 2020-02-14
Order Type: Final Tribunal Order
Date of Order: 2023-02-14
Pronounced on: 2023-02-14
Case Conclusion:
THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘A’, NEW DELHI
Before Sh. C. M. Garg, Judicial Member and Dr. B. R. R. Kumar, Accountant Member
ITA No. 813/Del/2020 : Assessment Year: 2015-16
Aromatics India Pvt. Ltd, F-25, DSIDC Industrial Complex, Rohtak Road, Nangloi, New Delhi-110041
Vs. ACIT, Circle-3(1), New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AAACA9994J
Assessee by: Sh. Ranjan Malik, CA
Revenue by: Sh. Kanv Bali, Sr. DR
Date of Hearing: 09.02.2023
Date of Pronouncement: 14.02.2023
Order:
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of the ld CIT(A)-32, New Delhi dated 19.01.2018.
The assessee has raised ground No. 2 with regard to the confirmation of addition of Rs. 362482/- on account of excessive interest paid on unsecured loan, this addition being arbitrary and contrary to the facts and provisions of law and is liable to be deleted.
Aggrieved with the addition of Rs. 362482/- made by the AO as confirmed by the ld CIT(A), the assessee filed an appeal before the Tribunal. On going through the record, we find that the addition has been made on account of the difference between the lending rate of the banks of 13.25% and payment of interest @1.75% on the loan received from the group companies. We find that the difference of 1.75% interest rate on secured loans from the banks and the unsecured loans from the private parties can be an acceptable range, and hence, the addition made is hereby deleted.
Order Pronounced in the Open Court on 14/02/2023.
Sd/- Sd/-
(C. M. Garg) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 14/02/2023
*Ajay Kumar Keot, Sr. PS*
Copy forwarded to:
Assistant Registrar
ITAT New Delhi
Additional Information:
Date of dictation
Date on which the typed draft is placed before the dictating Member
Date on which the typed draft is placed before the other Member
Date on which the approved draft comes to the Sr. PS/PS
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. PS/PS
Date on which the final order is uploaded on the website of ITAT
Date on which the file goes to the Bench Clerk
Case Background and Details:
Aromatics India Pvt. Ltd, a company based in New Delhi, had filed an appeal against the ACIT, Circle-3(1), New Delhi, regarding the assessment year 2015-16. The primary issue in this appeal was the addition of Rs. 362482/- made by the Assessing Officer (AO) on the grounds of excessive interest paid on unsecured loans. The company argued that this addition was arbitrary and contrary to the facts and provisions of law.
The company had received unsecured loans from its group companies and paid interest at a rate of 1.75%. The AO, however, compared this rate with the lending rate of banks, which was 13.25%, and deemed the interest paid to be excessive. Consequently, the AO made an addition of Rs. 362482/- to the company’s income.
Aggrieved by this addition, Aromatics India Pvt. Ltd approached the CIT(A), which upheld the AO’s decision. Unsatisfied with this outcome, the company filed an appeal with the Income Tax Appellate Tribunal (ITAT).
Arguments Presented:
During the hearing, the company’s representative, Sh. Ranjan Malik, CA, argued that the interest rate of 1.75% paid on unsecured loans from private parties was reasonable, especially when compared to the secured loans from banks, which naturally carry a higher interest rate due to the lower risk involved. He contended that the AO’s addition was unjustified and should be deleted.
On the other hand, the Revenue’s representative, Sh. Kanv Bali, Sr. DR, supported the AO’s decision, arguing that the interest rate discrepancy justified the addition made.
Tribunal’s Findings:
The Tribunal, after considering the arguments and reviewing the records, found that the AO’s comparison of the interest rates on secured bank loans with unsecured loans from private parties was flawed. The Tribunal noted that it is common for unsecured loans to have a lower interest rate compared to secured loans due to the absence of collateral.
The Tribunal further observed that the 1.75% interest rate paid by Aromatics India Pvt. Ltd on the unsecured loans from its group companies was within an acceptable range and did not warrant an addition to the company’s income.
Conclusion:
In light of these findings, the Tribunal concluded that the addition of Rs. 362482/- made by the AO was unjustified and arbitrary. Consequently, the Tribunal ordered the deletion of this addition, providing relief to Aromatics India Pvt. Ltd.
The order was pronounced in the open court on 14th February 2023, bringing the case to a close.
This case highlights the importance of considering the nature and terms of loans when assessing interest payments and demonstrates the Tribunal’s role in ensuring fair and just treatment of taxpayers.
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