2023 (10) TMI 1426

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....)"], for the assessment year 2014-15. 2. In its appeal, the assessee has raised the following grounds:- "1. On the facts and circumstances of the case and in law the learned Commissioner (Appeals) is not justified in confirming the rate of interest to 12% allowed by the Assessing Officer as against 18% claimed by the appellant u/s 40A(2)(b). 2. On the facts and circumstances of the case and in law the learned Commissioner (Appeals) is not justified in holding that the rate of Interest paid to related party is restricted to 12% without considering the prevailing market rate of Interest for Unsecured Loans and ascertaining the fair and reasonable rate of Interest paid by appellant. 3. On the facts and circumstanc....

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....ccordingly, the assessee was asked to show cause as to why excess interest paid to related parties should not be disallowed. After considering the submissions of the assessee, the Assessing Officer ("AO") vide order dated 29/12/2016 passed under section 143(3) of the Act by drawing an analogy from the provisions of section 40(b)(iv) of the Act, which restricts allowance of payment of interest to the partner of the firm to 12% per annum, held that interest payment in excess of 12% to related parties, especially the sister concern, is squarely hit by the provisions of section 40A(2)(a) of the Act. Accordingly, in view of the specific provisions of section 40A(2)(a) of the Act, interest payment in excess of 12% was disallowed and a difference ....

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....fit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction:" 6. Therefore as per section 40A(2)(a) of the Act, if in the opinion of the AO, the payment made by the assessee to any related person is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made, so much of the expenditure as is considered excessive or unreasonable by the AO shall not be allowed as deduction. Thus, under the aforesaid section, the AO is required to first find out the fair market value of the goods, services, or facilities for which the payment was made. However, in the present case,....