The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that a loan obtained of non-gratuitous nature will not fall under section 2(22)(e) of the Income Tax Act,1961.
The assessee, M/s. Jayson Industries contended that the Assessing Officer has compared the expenses incurred and paid to the sister concern, Jaypee Tehnoplast Pvt. Ltd., with an outside party, namely, Kalsi Mould and Dyes whereas the nature of services rendered by both the entities are wholly different.
The assessee, is engaged in the business of manufacturing plastic goods and has obtained services under AMC related to Mould Manufacturing and Repair Expenses from the related party and CNC Services from an unrelated party and both the services are not comparable and thus cannot be the basis for determination of fair market value by invoking the provisions of Section 40A(2)(b) of the Act. The assessee firm obtained a loan of Rs.32 lac from the company on 31.03.2012.
The Assessing Officer invoked the provisions of Section 2(22)(e) on these facts and made an addition of Rs.25,43,262/- to the extent of accumulated profits lying as reserve and surplus of the lender company. CIT(A) has confirmed the action of the Assessing Officer
It was evident that lack of sound basis for the determination of ‘fair market value’ and consequent inapplicability of Section 40A(2)(b) in the facts of the case, thereby the Tribunal set aside the action of the Revenue Authorities.
It was observed that the assessee firm has obtained loans from the sister concern on a commercial basis and accepted the assessee’s contention that the advances made by the lender company to the borrower assessee firm are not a loan/advance but are beset with the character of quid pro quo owing to charge of interest for the benefit of lender company.
Shri Kul Bharat, judicial member & Shri Pradip Kumar Kedia, accountant member observed that the loan obtained being not gratuitous does not fall within the mischief of Section 2(22)(e) of the Act. The appeals of the assessee are allowed.
Shri A.K. Srivastava appeared on behalf of the appellant and Shri Gurpreet Shah Singh appeared on behalf of the respondent.
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