TaxTMI 
TaxTMI 
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??
Disallowance of interest paid on unsecured loan
05 Dec 2009 
2 Replies 
22019 Views Asked by
Reasonableness of interest under section 40A(2) can avoid disallowance by proving market terms and contemporaneous offers.
Assessing officer disallowed interest under section 40A(2) by treating the excess rate on unsecured loans from relatives as unreasonable; reasonableness must be judged on the transaction date from total facts and circumstances, including differing loan terms, timing, and contemporaneous market offers, and contemporaneous evidence of commercial necessity and genuine terms is central to contesting the disallowance. (AI Summary)
Assessing officer disallowed interest under section 40A(2) by treating the excess rate on unsecured loans from relatives as unreasonable; reasonableness must be judged on the transaction date from total facts and circumstances, including differing loan terms, timing, and contemporaneous market offers, and contemporaneous evidence of commercial necessity and genuine terms is central to contesting the disallowance. (AI Summary)