AEP COMPANY,VALLABH UDYOGNAGAR vs. THE DCIT, ANAND CIRCLE,, ANAND

Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of interest expenditure amounting to Rs.1,10,000/-.

Despite service of notice, none has come present on behalf of the assessee.

With the assistance of the ld.DR, we have gone through the record carefully and proceed to decide the appeal ex parte qua the assessee- appellant.

It emerges out from the record that the assessee has taken loans from three persons viz. Diptiben K. Shah of Rs.67,500/-; Pushpaben R. Shah, Rs.15,000/-; and Shri Vishnubhai P. Patel of Rs.2,47,000/-. It has paid interest at the rate of 15%. The ld.AO was of the view that in financial years 2010-11, 2011-12 and 2012-13 interest was paid at the rate of 10% while the assessee has paid interest at the rate of 15% in this assessment year. Accordingly, he disallowed excess payment of 5% and made addition of Rs.1,10,000/-.

On due consideration of the above facts and circumstances, we are of the view that action at the end of the ld.Revenue authorities are totally unjustified. It is for the assessee to decide, at what rate it has to obtain the finance. If undue favour is being extended to any person, over and above market rate, then the AO can make disallowance. In other words, if the rate of interest paid by the assessee to these three individuals at 15% exceeded the interest rate prevailing in the market, then probably, the AO could harbor a belief that it was not for the purpose of the business. The assessee has demonstrated that the interest rate given to the bank for working-capital was at 14.50%. The loans taken from the individuals are unsecured loans where it was not required to execute guarantee documents etc. The AO has just compared the rate of interest from earlier years. Rather his angle of inquiry should be, what is the market rate available during this year, and if the assessee has given over and above the market rate, then the

In the result, appeal of the assessee is allowed. Pronounced in the Open Court on 25th March, 2019.