2009 (1) TMI 357

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....at the learned CIT(A) has erred in charging the interest under Sections 234A and 234D of the IT Act vide his demand notice. 2. The AO disallowed interest of Rs. 63,631 paid by the assessee @ 15 per cent per annum to persons specified under Section 40A(2)(b) of the IT Act, holding that the payment of interest @ 15 per cent per annum was unreasonable, since the assessee had paid interest @ 12 per cent to M/s. Nand Kishore Iishab Kumar and Shri Madan Mohan Lal and no interest had been paid to Shri Ram Kumar Aggarwal and Ms. Sushma Rani. The learned CIT(A) having confirmed the disallowance, the assessee is in further appeal before us. 3. The learned Counsel for the assessee has submitted that interest @ 15 per cent had been paid to the fa....

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....e, on the other hand, placing strong reliance on the impugned order, has submitted that the disallowance in question has rightly been confirmed by the learned CIT(A), since whereas the assessee paid 12 per cent interest to unrelated parties, it had paid 15 per cent interest to related parties; that this payment stands directly covered by the provisions of Section 40A(2)(b) of the Act; that the appeal of the assessee does not carry any force: and that same be ordered to be dismissed. 5. We have heard both the parties and have perused the material placed on record. The question is as to whether 15 per cent interest per annum to related parties has rightly been disallowed. There is no dispute that the payment of interest @ 15 per cent per a....

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....id to persons covered under Section 40A(2)(b) of the Act held not disallowable]. (2) Asstt. CIT v. Alfa Rubber Inds. (2008) 172 Taxman 35 (Asr)(Mag) [21 per cent interest paid to persons covered under Section 40A(2)(b) held allowable]. (3) ITO v. Chamba Mal Roop Chand (1993) 47 TTJ (Ahd) 556 [held that market value of the services and not the individual action of the assessee has to be looked into while making the disallowance under Section 40A(2)(a) of the Act-market rate of interest @ 24 per cent held to be reasonable). (4) Hynoup Food & Oil Industries (P) Ltd. v. Asstt. CIT (1993) 47 TTJ (Ahd) 556 (held that where interest paid to the directors was not at a rate higher than the market rate, disallowance could n....