Allowed

Idrs Labs Private Limited v. Deputy Commissioner of Income Tax

Karnataka HC9 Jan 2023ITA/63/2020

Case brief

AI extract

What is this about?

High Court allowed Income Tax Appeal challenging ITAT order. Court held that the assessee cannot be compelled to pay higher interest than agreed with director who declared the higher amount in his return, as revenue officers cannot decide business expediency.

What did the court decide?

Impugned ITAT order setting interest at 15.5% set aside; interest held to be at the agreed rate of 18%.

Idrs Labs Private Limited Vs Deputy Commissioner of Income Tax — Income Tax | Karnataka HC (2023)

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ITA.63/2020

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 9^TH DAY OF JANUARY, 2023

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PRESENT

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THE HON'BLE MR JUSTICE P.S.DINESH KUMAR

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AND

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THE HON'BLE MR JUSTICE G. BASAVARAJA INCOME TAX APPEAL NO.63 OF 2020

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BETWEEN:

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IDRS LABS PRIVATE LIMITED, NO.235-H, PHASE 3, HOSUR ROAD, BOMMASANDRA INDUSTRIAL AREA, BENGALURU-560 099.

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(REPRESENTED BY ITS DIRECTOR SRI SHIVKUMAR MADKI, AGED ABOUT 42 YEARS,

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S/O SRI VIJAYKUMAR MADKI.

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...APPELLANT

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(BY SRI SUDHEENDRA B. R., ADVOCATE)

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AND:

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DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -3(1)(1), BANGALORE, BMTC BUILDING, 80 FT. ROAD, KORAMANGALA 6^TH BLOCK, BENGALURU -560 095.

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Digitally signed by RAMYA D Location: High Court of Karnataka

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...RESPONDENT (BY SRI DILIP M., STANDING COUNSEL FOR SRI K.V. ARAVIND, SR.STANDING COUNSEL)

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THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 23/10/2019, PASSED IN ITA NO.1309/BANG/2018, FOR THE ASSESSMENT YEAR 20152016, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ETC,.

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ITA.63/2020

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THIS ITA COMING ON FOR HEARING THIS DAY, P.DINESH KUMAR J ., DELIVERED THE FOLLOWING:

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JUDGMENT

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This appeal by the assessee challenging the order dated October 23rd, 2019, passed in ITA

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No.1309/Bang/2018 has been admitted to consider two questions of law.

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Shri.B.R.Sudheendra, learned advocate for the assessee and Shri.M.Dilip, learned advocate for Revenue jointly submit that Question No.1 will cover the issue involved in this appeal and it reads as follows:

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"1. Whether, on the facts and circumstances of the case and law applicable, the Tribunal was correct in law in confirming the order of the Ld. CIT(A) in determining the fair market rate of interest at 15.5% p.a. under section 40A(2) of the Income Tax Act, 1961?"

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Brief facts of the case are, assessee was

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borrowing loan from one of its directors Shri. Yogesh

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ITA.63/2020

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Bhandari. As on April 1st, 2014 the loan amount had accumulated to Rs.2,22,43,087/-. For the Assessment Year 2015-16, an interest of Rs.77,84,526/- was paid by the company to the Director by computing the interest at 18%. The Assessing Officer restricted it to 12%. The Commissioner of Income Tax (Appeal) ("CIT(A)" for short) allowing the appeal in part increased the interest at 15.5% and same has been confirmed by the Income Tax Appellate Tribunal (for short 'ITAT').

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Shri. Sudheendra, learned advocate for the assessee submitted that transaction is not in dispute. The Director has declared the interest received in his return of income and paid tax on it. The CIT(A) has partly allowed the appeal on the premise that the company had obtained secured loan at 14.5% from M/s.Siemens Financial Services Private Limited. He argued that Revenue cannot fix the rate of interest arbitrarily. Accordingly, sought for allowing this appeal.

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ITA.63/2020

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Shri.Dilip for the Revenue, opposing the

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appeal submitted that secured loan was available at 14.5%. However, company has chosen to pay interest at 18%, therefore, no interference is called for.

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We have carefully considered the rival

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contentions and perused the papers.

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Undisputed facts of the case are, loan has been advanced by the Director - Shri.Yogesh Bhandari. The Assessing Officer has allowed 12% as interest and CIT(A) has increased it to 15.5%. The reason recorded by the CIT(A) is that company had taken secured loan from M/s.Siemens Financial Services Private Limited at 14.5%.

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It is also not disputed that the Director has shown the interest received by him at 18% in his return of income and paid tax on the same. It is settled that the Revenue officers cannot sit in the chair of the

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ITA.63/2020

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assessee and decide the expediency in business. It is for the assessee to take its business call while conducting its business. There is no rationale in reducing the rate of interest by the Assessing Officer and arbitrarily increasing the same to 15.5% by the CIT(A) on the premise that secured loan was obtained at 14.5%.

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Therefore, the impugned orders passed by the Assessing Officer, CIT(A), ITAT, are perverse and not sustainable in law.

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Hence, the following:

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ORDER

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(1) Appeal is allowed .

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(2) The order passed by the AO, modified by the CIT(A) and confirmed by the impugned order dated 23.10.2019 passed in ITA No.1309/Bang/2018 (Annexure-E) by the ITAT, are set aside

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ITA.63/2020

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holding that rate of interest shall be as

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agreed by the parties at 18%.

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(3) Question of law is answered in favour of

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assessee and against the Revenue.

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(4) No costs.

Sd/JUDGE

Sd/JUDGE

List No.: 1 Sl No.: 96

Idrs Labs Private Limited v. Deputy Commissioner of Income Tax

Case brief

What is this about?

What did the court decide?

Idrs Labs Private Limited v. Deputy Commissioner of Income Tax

Case brief

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