TaxTMI 
TaxTMI 
TaxTMI 
2017 (1) TMI 55
X X X X Extracts X X X X
X X X X Extracts X X X X
....income for the assessment year 2010-11 on 21.9.2009 admitting total income of Rs. 70,07,650/-. The case was selected for scrutiny and accordingly notices u/s 143(2) & 142(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act') along with questionnaire were issued. In response to notices, authorized representative of the assessee appeared from time to time and furnished books of accounts and other details called for. During the course of assessment proceedings, the A.O. noticed that the assessee has paid interest to unsecured loan creditors ranged from 13.2% to 24% and accordingly, disallowed interest paid over and above 13.2% and added to total income of the assessee. 3. Aggrieved by the assessment order, the assessee pref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted parties, which is excessive or unreasonable to invoke the provisions of section 40A(2)(b) of the Act. The A.R. further submitted that the A.O. himself has admitted the fact that the assessee has paid interest ranged from 13.2% to 24% to related parties as well as non-related parties. When such being the case, comparison of interest paid to one of the creditors to the market rate for applying the provisions of section 40A(2)(b) of the Act is incorrect. To invoke the provisions of section 40A(2)(b) of the Act, the A.O. has to allege that the assessee has paid interest over and above the fair market rate of interest to related parties. In this case, the assessee has paid common rate of interest to related as well as non-related parties and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on-related parties. This fact was not disputed by the revenue. The A.O. is on the point that the assessee had paid different rate of interest to different persons and in one such case, he had paid 13.2% rate of interest and accordingly, applied the same rate of interest for remaining persons. We do not find any merits in the findings of the A.O., for the reason that where assessee has himself raised borrowings by paying interest @ 13.2% to 24%, similarly placed unrelated parties, disallowance of interest payments to related parties over and above 13.2% is not correct. We further observed that the provisions of section 40A(2)(b) of the Act, mandates disallowance of any expenditure including interest payments to related parties, if the A.O. i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be allowed as deduction. The relevant portion of the order is extracted below: * The Tribunal has noted that section 40A(2)(b) contemplates that if some undue benefit is being extended by the assessee to the persons mentioned in sub-clause (2)(b) of section 40A on account of their association with the assessee, then the deduction claimed for that benefit ought to be disallowed to the assessee. In other words, if the assessee can avail the facility from the open market at a lower price than similar facility availed from the persons covered under section 40A(2) (b), then that excess payment would not be allowed to the assessee as deduction. * The question that arose before the Tribunal was that what was the fair market value of interes....