The Tax Publishers2019 TaxPub(DT) 2459 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 40A(2)(b)

Where assessee had paid interest to non-related parties at similar rate it was incorrect to hold that assessee had paid excessive rate of interest to related parties, therefore, no disallowance under section 40A(2)(b) could be made.

Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - Interest paid to related parties at same rate, at which paid to unrelated parties -

AO noticed that assessee-company paid interest @ 18% per annum to related parties whereas prevailing market rate of interest was 12% per annum on the borrowed fund. Accordingly, AO disallowed difference in the rate of interest, i.e., 6% under section 40A(2)(b).Held: AO assumed prevailing market rate of interest at the rate of 12% per annum on borrowed fund without bringing any tagible material on record. It was the assessee who knew its business affairs the best than any other person and the assessee could only decide the need for borrowing from related parties, including the rate of interest. As such AO was not expected to direct/advise the assessee to borrow money for business at a particular rate of interest. As evident assessee had also paid interest to non-related parties within the range of 15% to 18% per annum on borrowed funds. Also, there was no dispute about use of fund borrowed by the assessee at the rate of 18% per annum for its business purposes, thus, it was incorrect to hold that assessee had paid excesive rate of interest to related parties. Payment to non-related parties at similar rate and Accordingly, disallowance made by AO was not justified.

Supported by:Oracle India (P) Ltd. reported in 11 taxmann.com 139 : 2012 TaxPub(DT) 424 (Del-HC) and Omkarmal Gaurishanker (1990) 39 TTJ 223 (Ahd) : 1991 TaxPub(DT) 538 (Ahd-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11


INCOME TAX ACT, 1961

Section 36(1)(iii)

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com