2019 (5) TMI 1084

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....he assessee is an individual and filed its return of income for A.Y. 2012-13 declaring total income of Rs. 5,46,870/- which was duly processed. Upon scrutiny notice u/s 143(2) dated 12.08.2013 was served. During the assessment proceeding, it was found from the record that the assessee has paid interest at 15% totaling to Rs. 25,00,469/- to certain parties covered u/s 40A(2)(b) whereas 10% - 12% to other parties. A show-cause dated 10.02.2015 was issued to the assessee as to why 3% (in excess of 12%) of such payment to the parties u/s 40A(2)(b) should not be disallowed. In reply, the assessee submitted that funds were borrowed for business purpose and such interest @15% was paid according to the demand of the lenders. The contention of the a....

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....s below that before invoking the Section 40A(2)(b) while disallowing 3% of excess rate of interest paid to the parties @15% on the borrowed funds, no deliberation has been made by the authorities below as regards the prevailing market rate of interest on similar service. In terms of the order passed by the Jurisdictional High Court in the matter of CIT-vs-Suzlon Energy Ltd as relied upon by the Learned AR, it is the duty incumbent upon the Learned AO to assess the fair market price and give comparative instance for payment of interest for similar services. Firstly; before disallowing u/s 40A(2)(b) for such payment being excessive or unreasonable it has to be ascertained that such payment is made to specific person under clause 40A(2)(b) and....

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....se notice was issued as to why proportionate disallowance of interest expenses should not be made in view of Section 36(1)(iii) of the Act. In reply whereof the assessee submitted that unsecured loans were borrowed for the purpose of business and investment were made out of own funds and not out of borrowed funds. Ultimately, the Learned AO disallowed Rs. 6,00,000/- u/s 36(1)(iii) being 12% of the investment of Rs. 50,00,000/-. In appeal, the said order was confirmed by the Learned CIT(A). Hence, the instant appeal before us. 7. At the time of hearing of the instant appeal, the Learned AR submitted before us that the advances were made on account of business expediency. Such advances to the builders was made to acquire commercial propert....