ITAT rules in favor of assessee, partially allowing appeal on interest disallowance under Income Tax Act.

The ITAT partially allowed the assessee's appeal, ruling in favor of the assessee by deleting the disallowance of interest under section 40A(2)(b) of the Income Tax Act, 1961. The ITAT also directed a recalculation of interest under section 234B, considering the previous acceptance of 18% interest as reasonable by the assessing officer.

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Issues involved: Appeal against CIT(A)'s order u/s 143(3) of the Income Tax Act, 1961 - Disallowance of interest u/s 40A(2)(b) - Charging of interest u/s 234B.

Disallowance of interest u/s 40A(2)(b): The assessee appealed against the disallowance of interest of Rs. 1,31,682 made by the assessing officer u/s 40A(2)(b) at 12% instead of the interest paid by the assessee at 18%. The counsel for the assessee cited previous ITAT decisions where similar disallowances were deleted, emphasizing that interest rates ranging from 15% to 24% were considered reasonable. The counsel argued that the interest paid at 18% to relatives was not excessive, especially considering the long-term nature of the advance. The ITAT noted that the AO had previously accepted 18% interest as reasonable, thus ruling in favor of the assessee and deleting the disallowance.

Charging of interest u/s 234B: Ground no.2 of the appeal concerned the charging of interest under Section 234B of the Act. Both parties agreed that this issue was consequential, and the ITAT directed the Assessing Officer to recalculate any interest after determining the income based on the above decision.

Conclusion: The ITAT allowed the assessee's appeal partly, deleting the disallowance of interest u/s 40A(2)(b) and directing a recalculation of interest u/s 234B.

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