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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER आयकर अपील सं./ ITA.No.2698/Ahd/2016 �नधा�रण वष�/ Asstt. Year: 2013-2014 Anurag Goel DCIT, Cir.5(2) Delta Global Inc. Ahmedabad. Vs 903, Saffron Tower Opp: Central Mall, Panchvati, Ambawadi, Ahmedabad. अपीलाथ�/ (Appellant) �� यथ�/ (Respondent)
Assessee by : Written Submissions Revenue by : Shri Prasoon Kabra, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 13/04/2018 घोषणा क� तार�ख /Date of Pronouncement: 10/05/2018 आदेश/O R D E R
Assessee is in appeal before the Tribunal against order of ld.CIT(A), Ahmedabad-5 dated 9.9.2016 passed for the Asstt.Year 2013-14.
Solitary grievance of the assessee relates to restriction of payment of interest to 15% instead of interest at the rate of 24% paid by the assessee to the persons covered under section 40A(2)(b) of the Income Tax Act, 1961.
Brief facts of the case are that the assessee has paid interest on the loans availed from 10 persons. Rate of interest paid was 24%. The ld.AO observed that the same is exorbitant, and accordingly show cause notice was issued to the assessee to explain as to why rate of interest should not be restricted to 15%. The assessee explained that loan taken from relatives are totally unsecured and no security was provided for such loan. Interest on such loan without security or formality always remains on higher rate, and
ITA No.2698/Ahd/2016 2 therefore, comparatively, rate of interest charged to the assessee is reasonable and justifiable. The ld.AO did not accept this submission of the assessee and observed that the rate of interest paid by the assessee was much higher than the prevailing market, and therefore, the AO restricted the interest to 15% resulting in proportionate disallowance of Rs.10,18,724/-. Appeal to the CIT(A) did not succeed, hence, the assessee is in further appeal before us.
Assessee filed written submissions on the issue. In the written submissions, the assessee inter alia pleaded that the rate of interest at 15% estimated by the AO is without any basis or valid comparable instances. The AO has not assigned any specific reason for treating the rate of interest at 24% as excessive and unreasonable. The AO failed to consider the fact that loan taken from relatives are totally unsecured and without any collateral security, and such type of loans always attract higher rate of interest. It is also pleaded that the Tribunal in the assessee’s own case for A.Y.2012-13 considered similar issue in ITA No.2906/Ahd/2015 wherein the Tribunal observed that the rate of interest charged by the assessee at 24% on unsecured loan is not excessive. Assessee placed on record copy of Tribunal’s order dated 29.8.2017 to support his case. The ld.DR on the other hand, supported orders of the Revenue authorities.
With the assistance of the ld.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
ITA No.2698/Ahd/2016 3 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 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.
In the result, appeal of the assessee is allowed. Order pronounced in the Court on 10th May, 2018 at Ahmedabad. Sd/- (RAJPAL YADAV) JUDICIAL MEMBER Ahmedabad; Dated 10/05/2018