2015 (10) TMI 2767

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....ning the addition made by the Assessing Officer under section 40A(2)(b) of the Income Tax Act, 1961 (for short "the Act") towards interest paid on loans.   3. Brief facts are, the assessee a partnership firm is engaged in the business of builders and developers. For the assessment year under dispute, the assessee filed its return of income on 21st September 2013, declaring total income of Rs. 1,12,800. In course of assessment proceedings, the Assessing Officer noticing that in the relevant previous year, the assessee has claimed deduction of Rs. 6,43,24,694, on account of interest payment called for the necessary details. After verifying the details furnished by the assessee he observed that the assessee has paid interest @ 15% on uns....

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....appeal before the first appellate authority.   4. Before the learned Commissioner (Appeals), the assessee contended that the Assessing Officer has wrongly assumed that all the unsecured loans on which interest @ 15% was paid are from related party. Furnishing the details of persons/entities from whom the assessee has availed unsecured loan, it was submitted that out of eight parties from whom the assessee has availed unsecured loans only three parties viz. Amal Corporation, Bhumi Realtors, Option Developers and Builders are related parties. It was submitted, since the assessee has paid interest @ 15% even to unrelated parties, the interest paid to related parties at the same rate cannot be considered as unreasonable and no disallowanc....

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....he submitted, even as regards interest paid to related parties @ 15%, the same cannot be considered as excessive or unreasonable considering the fact that the assessee has paid interest at the same rate to unrelated parties. She submitted, interest paid @ 6% paid to Mamta Enterprises cannot be considered as bench mark since the said unsecured loan is on short term basis and is re-payable on demand. Whereas, the other unsecured loans were for longer period. The learned Authorised Representative submitted, in respect of real estate enterprises Banks are charging interest @ 18% on working capital facilities. Therefore, interest paid @ 15% cannot be considered to be high and excessive compared to the market rate of interest. The learned Authori....

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....y three viz. Amal Corporation, Bhoomi Realtors and Option Developers and Builders are related parties. The learned Commissioner (Appeals) has directed the Assessing Officer to verify the aforesaid fact and apply the average rate of interest paid to unrelated parties for computing disallowance under section 40A(2)(b) of the Act. Be that as it may, the core issue arising for consideration is whether the interest paid @ 15% to related parties can be considered as excessive and unreasonable to invoke the provisions of section 40A(2) of the Act. It is evident from the facts and material on record, the assessee has paid interest @ 15% to both related and unrelated parties. Of-course, in case of two unrelated parties, the assessee has charged inte....