D: Whether In The Facts And Circumstances Of Thecase, The Authorities Were Right In Comparingthe Interest Paid To Private Parties Withinterest Applied By Bank I v. Cit And Otherjudgments?”Case, The Authorities Were Right In Comparingthe Interest Paid To Private Parties Withinterest Applied By Bank In View Of The Decisionof

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU THURSDAY, THE 17TH DAY OF AUGUST 2017/26TH SRAVANA, 1939 ITA.No. 49 of 2017 ---------------------- AGAINST THE ORDER IN ITA 13/2017 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 21/4/17 --------- APPELLANT/APPELLANT/ASSESSEE: --------------------------------------- EMPEE CREDIT CORPORATION, 8/189, SILK STREET, CALICUT-673082REP. BY SANDEEP MEHTA, MANAGING PARTNER. BY ADVS.SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENT/RESPONDENT/REVENUE: -------------------------------------------- THE COMMISSIONER OF INCOME TAX,KOZHIKODE - 673004. BY SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 17-08-2017, ALONG WITH ITA. 54/2017, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: ANTONY DOMINIC, & DAMA SESHADRI NAIDU, JJ. ------------------------------------------------ I. T. Appeal Nos.49 & 54 of 2017 ------------------------------------------------ Dated this the 17[th ]day of August, 2017 JUDGMENT Antony Dominic, J. 1. aThese appeals are filed by the assessee impugningthe orders passed by the Income Tax Appellate Tribunal inI.T.A. No.13/17, concerning the Assessment Year 2009-10and I.T.A. No.14/17, concerning the Assessment Year 2012-13. The issue raised are common and therefore, theseappeals are heard together. 2. The common questions of law raised read asunder: “A: WHETHER, in the facts and circumstances ofthe case, the authorities were right in invokingthe provisions of Sec.40A[2][b] of the Act inrespect of interest paid to Ms. ManeklalPurushotham & Sons HUF - a HUF where whilethere were 21 coparceners, only 5 of suchcoparceners were partners of the appellantfirm, especially in view of the fact that theamounts transferred by the partners of thefirm constituted only a minor part of thethe case, the authorities were right in invokingthe provisions of Sec.40A[2][b] of the Act inrespect of interest paid to Ms. ManeklalPurushotham & Sons HUF - a HUF where whilethere were 21 coparceners, only 5 of suchcoparceners were partners of the appellantfirm, especially in view of the fact that theamounts transferred by the partners of thefirm constituted only a minor part of the I. T. Appeal Nos.49 & 54 of 2017 -2- amounts received by the HUF from varioussources and the amounts advanced to theAppellant also formed only a minor part of thetotal advances made to different customers? B: Whether the authorities were justified infinding that the interest paid to the above HUFon a total of Rs.114 lakhs were “excessive”when compared to the maximum interest thatthe firm would have been liable to pay if thePartners had not withdrawn Rs.44.03 lakhsthat was available to their credit in theircurrent accounts ?finding that the interest paid to the above HUFon a total of Rs.114 lakhs were “excessive”when compared to the maximum interest thatthe firm would have been liable to pay if thePartners had not withdrawn Rs.44.03 lakhsthat was available to their credit in theircurrent accounts ? C: Whether the authorities were right indisallowing part of interest paid to HUF on theground that if the Partners had not withdrawnthe amounts standing to their credit in theircurrent accounts, the interest payable on suchcredit balances would have been only 12%against 19.5% paid to the HUF?disallowing part of interest paid to HUF on theground that if the Partners had not withdrawnthe amounts standing to their credit in theircurrent accounts, the interest payable on suchcredit balances would have been only 12%against 19.5% paid to the HUF? C: Whether the authorities were right indisallowing part of interest paid to HUF on theground that if the Partners had not withdrawnthe amounts standing to their credit in theircurrent accounts, the interest payable on suchcredit balances would have been only 12%against 19.5% paid to the HUF?disallowing part of interest paid to HUF on theground that if the Partners had not withdrawnthe amounts standing to their credit in theircurrent accounts, the interest payable on suchcredit balances would have been only 12%against 19.5% paid to the HUF? D: Whether in the facts and circumstances of thecase, the authorities were right in comparingthe interest paid to private parties withinterest applied by Bank in view of the decisionof Supreme Court in UPPER INDIAPUBLISHING CO. LTD Vs. CIT and otherjudgments?”case, the authorities were right in comparingthe interest paid to private parties withinterest applied by Bank in view of the decisionof Supreme Court in UPPER INDIAPUBLISHING CO. LTD Vs. CIT and otherjudgments?” 3. From the above, it is evident that the only issue that is raised is whether the dis-allowance of interest paid to a related concern by invoking the provisions of Section 40A I. T. Appeal Nos.49 & 54 of 2017 (2) is justified or not. 4. Insofar as the Assessment Year 2009-10 which isthe subject matter of I.T.A.13/17 is concerned, from theassessment order, a copy of which is produced as Annexure-O, we find that the assessee have availed an unsecured loanof `1,56,45,603.49/- from the HUF as on 01.04.2008. TheAssessing Officer found that the partners in the firm hadtransferred `44,03,065.88/-, the credit balance available intheir current account to the HUF as on 01.04.2008. The verysame amount was again introduced to their current accountas a loan from the HUF. Thus, out of the total loan liability ofthe firm to the HUF, more than 44 lakhs were came to theHUF by way of transfer by the partners of the firm itself. Ifthe amount had remained in the current account, thepartners would have earned interest only at 12% and for theloan availed from the HUF, the firm had paid 19.5%interest. The Assessing Officer specifically found that theassessee had not furnished any evidence to prove that the I. T. Appeal Nos.49 & 54 of 2017 payment of interest at 19.5% to the HUF was for the benefit of interest of his business. It was in this background andconsidering the fact that partners of the firm itself havemembers of the HUF that the Assessing Officer ordered anaddition of `8,67,767/-, being the interest paid over andabove 12%, to the total income returned by invoking theprovision of Section 40A of the Act. 5. Similar is the factual situation insofar as theAssessment Year 2012-13 which is the subject matter ofI.T.A. No.14/17, is concerned also. Section 40A(2), makes itclear that where the assessee incurs any expenditure inrespect of which payment has been or is to be made to anyperson referred to in Clause(b) of the Section and theAssessing Officer is of opinion that such expenditure isexcessive or unreasonable having regard to the facilities forwhich payment is made or the legitimate needs of thebusiness or profession of the assessee, it is open to theAssessing Officer to disallow so much of the expenditure as I. T. Appeal Nos.49 & 54 of 2017 is considered by him to be excessive and unreasonable. 6. Having regard to the factual finding of theAssessing Officer which have been confirmed by the firstappellate authority and the Tribunal, we feel that thededuction is perfectly justified in the light of Section 40A(2).We do not find any questions of law arising in this case to beconsidered by this Court. Appeals fail and are dismissed accordingly. Sd/- ANTONY DOMINIC JUDGE Sd/- JUDGE DAMA SESHADRI NAIDU kns/- //TRUE COPY// P.S. TO JUDGE