INCOME TAX ACT, 1961

Section 40A(2)(b)

Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - Interest paid to related party treated as excessive, however, without bringing any comparable cases -

Assessee claimed deduction of interest @ 24% paid on money borrowed from related parties as specified under section 40A(2)(b). AO holding that rate of interest at 18% was reasonably enough. Accordingly, interest paid over and above the rate of 18% was disallowed was under section 40A(2)(b). Held: Disallowance under section 40A(2)(b) can be made if AO is of the opinion that expenditure in respect of which payment has been made to the related parties is excessive or unreasonable after having regard to the fair market value. But AO in the instant case not brought such comparable cases. Accordingly, there could not be any disallowance under section 40A(2)(b) without bringing any comparable cases based on cogent material, and that too, when interest paid was accepted in earlier years.

Relied:CIT v. Sridev Enterprise (1991) 192 ITR 165 (Karn) : 1991 TaxPub(DT) 1071 (Karn-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 14A Rule 8D

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