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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश / O R D E R
PER SHRI RAJPAL YADAV, JUDICIAL MEMBER :
The Assessee is in appeal before us against the order of Ld.Commissioner of Income Tax(Appeals)-1, Ahmedabad [‘CIT(A)’ in short] dated 30/05/2018 passed for Assessment Year (AY) 2015-16.
Though the assessee has taken three grounds of appeal, but his grievances revolve around a single issue; namely, Ld.CIT(A) has erred in Shri Anurag Goel vs. ITO Asst.Year – 2015-16 - 2 - confirming the disallowance of interest expenses amounting to Rs.4,16,373/-.
In response to the notice of hearing, assessee has filed written submissions containing therein that issue in dispute is squarely covered by the orders of ITAT in his cases passed in AYs 2013-14 & 2012-13. He placed on record copy of Tribunal orders in for AY 2012-13 and ITA No.2698/Ahd/2016 for AY 2013-14.
With the assistance of Ld.DR, we have gone through the record carefully. It emerges out from the record that assessee has paid interest @ 24% amounting to Rs.56,70,655/- to the persons covered u/s.40A(2)(b) of the Act on their deposits with the assessee.
In other words, the unsecured loan availed by the assessee were used for the purpose of business and he has paid interest @ 24%. The Assessing Officer was of the view that interest paid @ 24% is on the higher side and considering the impact of section 40A(2)(b) of the Act, interest at the most at 15% could be allowed to the assessee. He accordingly made the disallowance.
Dissatisfied with the disallowance, assessee carried the matter before the CIT(A).
Shri Anurag Goel vs. ITO Asst.Year – 2015-16 - 3 -
On appeal, the CIT(A) found that in this year interest had been paid to 10 relatives. Out of that, three relatives are new; namely, Rakesh Goel HUF, Tara Goel and Neha Goel. In earlier year, Tribunal has accepted the payment of interest @ 24% qua seven persons and he deleted the disallowance following the order of the ITAT but he confirmed the disallowance for the remaining three persons and in this way, the disallowance made by the Assessing Officer at Rs.21,26,650/- has been scaled down to Rs.4,16,373/-.
We find that identical aspect was considered by the Tribunal in AYs 2012-13 & 2013-14. The discussion made by the Tribunal in AY 2013-14 on this issue reads as under:
“5. With the assistance of the Id.representatives, I have gone through the record carefully. Section 40A(2)(b) contemplates that if an assessee incurs expenditure for availing the services of persons who are closely associated with the assessee- company or the management, and made payment to such persons in excess to the market rate, then, that extra payment will not be allowed to the assessee as deduction. In other words, if service is being availed by an assessee from the person falling under section 40A(2)(b), and the similar service was availed from open market on a lesser rate, then, the difference between those rates could not be allowed to the assessee as deduction. In the present case, the assessee has availed loan from the persons covered under section 40A(2)(b) and paid interest at the rate of 25%. This, according to the AO is excessive and unreasonable and higher than the one available from the open market. I am of the view that this observation is far from reality and without basis, considering the fact that the loan taken by the assessee is wholly unsecured and without any collateral securities. It is free from routine quagmire of formalities as one will be faced in the case of unsecured loans provided by various banks and financial institutions. Therefore, considering risk factor involved in discharge of loans without any Shri Anurag Goel vs. ITO Asst.Year – 2015-16 - 4 - securities and proper documentation, I do not find that the rate of interest charged to the assessee to be excessive or unreasonable. Further, even the Tribunal in assessee's own case for A.Y.2012-13 allowed similar claim of the assessee on the same footing. Therefore, following the binding order of the Division Bench of the Tribunal in assessee's own case cited supra, I allow the appeal of the assessee and delete disallowance of Rs.10,18,724/- made by the Revenue authorities.”
There is no disparity on facts. Different treatment could not be given qua three relatives on the rate of interest required to be paid on their unsecured loans. The Ld.CIT(A) has erred in creating an artificial difference merely on the ground that these are the fresh parties. The Ld.CIT(A) was required to assess, what could be the fair market value of their credit and how much interest can be paid on availing such type of loans in the open market. Therefore, respectfully following the orders of the Tribunal in assessee’s own cases for earlier years, we allow the grounds of appeal raised by the assessee and delete the disallowance.
In the result, appeal of the assessee is allowed. Order pronounced in the Court on 13-01-2020 at Ahmedabad.