Disallowance of interest paid on unsecured loan

[satbir singhwahi]

AO HAS U/S 40A(2) DISALLOWED INTEREST PAID TO RELATIVES @18% AND OTHERS @ 12%.I.E 6% HAS BEEN DISALLOWED.INTEREST PAID TO BANK 14.25% AND UNSECURED LOAN FROM RELATIVES WAS TAKEN TO TIDE OVER THE CRISIS AS BANK HAS REFUSED LIMITS AS MAJOR DEBTOR HAD GONE TO BIFR.WHETHER AO ACTION RIGHT???any favourable case laws u/s 40A(2) on above issue??

AI Summary

Debate on Disallowed 18% Interest on Unsecured Loans to Relatives Under Section 40A(2); Proving Reasonableness Urged A discussion on a tax forum addressed the disallowance of interest paid on unsecured loans to relatives at 18% by the Assessing Officer (AO) under Section 40A(2), while interest to others was at 12%. The loans from relatives were necessary due to a bank's refusal to extend credit. One response suggested demonstrating the reasonableness of the interest rate based on the circumstances when the loan was taken. Another response referenced a relevant court case and agreed that the issue is factual, emphasizing the need to prove the genuineness of the interest rate for favorable consideration.