Tribunal Upholds 18% Interest Rate as Reasonable, Deletes Addition for Excessive Interest in 2005-06 Assessment.

The Tribunal allowed the appeal of the assessee, deleting the addition of excessive interest under section 40A(2)(b) for Assessment Year 2005-06. The Tribunal found that the 18% interest rate paid was not excessive, considering factors such as the absence of security requirements and the loan's purpose. It noted that similar interest rates were paid to other parties not covered by section 40A(2)(b). The decision was consistent with the previous year's ruling where a similar addition was deleted by the CIT(A) without further appeal by the Revenue.

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Issues involved: Appeal against order of CIT(A) confirming addition of excessive interest u/s 40A(2)(b) for Assessment Year 2005-06.

Summary:
The appeal by the assessee was directed against the order of the CIT(A) regarding the addition of excessive interest u/s 40A(2)(b) of the Act for Assessment Year 2005-06. The counsel of the assessee argued that the issue was similar to the one in the preceding Assessment Year 2004-05, where the addition made by the AO was deleted by the CIT(A) and no further appeal was filed by the Revenue. The Tribunal noted that in the previous year, the addition u/s 40A(2)(b) was deleted by the CIT(A) for similar facts. The Tribunal found that the interest rate of 18% paid to depositors was not excessive considering various justifications such as no need for security, loan period, and purpose of the loan. It was also observed that other persons not covered by section 40A(2)(b) were also paid interest at the rate of 18%. The Tribunal held that the addition of excessive interest u/s 40A(2)(b) was not justified and thus deleted the same, allowing the appeal of the assessee.

Therefore, the Tribunal allowed the appeal of the assessee, and the addition of excessive interest u/s 40A(2)(b) was deleted based on the findings and reasoning provided in the judgment.

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