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Facts
The assessee, Adani Infrastructure Management Services Ltd., challenged the CIT(A)'s order which upheld the disallowance of Rs. 1,36,13,995/- under section 40A(2)(b) for excessive interest paid to a related holding company at 10.15%, alleging that loan from an unrelated party was taken at 8.15%. The assessee also raised issues regarding the denial of video hearing and the levying of additional interest under sections 234A, 234B, and 234C.
Held
The Tribunal found that the same interest rate was accepted by the Revenue in an earlier assessment year and that the AO failed to demonstrate the 10.15% rate was above the fair market rate. Citing a High Court judgment, it was held that mere difference in interest rates to various companies does not make the rate excessive. Consequently, the impugned disallowance was ordered to be deleted, and the appeal was allowed.
Key Issues
1. Whether interest paid to a related party at 10.15% was excessive under section 40A(2)(b) when a similar rate was accepted previously and the AO failed to establish it was above the fair market rate. 2. Whether the CIT(A) erred in not providing a video hearing. 3. Whether additional interest under sections 234A, 234B, and 234C was leviable.
Sections Cited
250, 40A(2)(b), 234A, 234B, 234C, 143(3), Rule 34 of ITAT Rules, 1963
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: Shri Sanjay Garg & Shri Makarand V. Mahadeokar
आदेश/O R D E R
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 12/12/2024 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2017-2018.
The assessee, in this appeal, has raised the following grounds of appeal:
1. In law and on the facts and circumstances of the appellant's case, the order passed by the learned CIT(A) u/s 250 of the Income-tax Act is bad in law and deserves to be cancelled.
2 In law and in the facts and circumstances in the case of the Appellant Company, the Ld. CIT(A) has erred in upholding disallowance under section 40A(2)(b) amounting to Rs. 1,36,13,995/- as excessive interest paid to related party.
In law and on the facts and in the circumstances of the case of appellant, the Ld. CIT(A) has erred in not providing video hearing before adjudicating the case.
3 4. In law and in the facts and circumstances of the appellant's case, the learned Assessing Officer has erred in charging additional interest u/s. 234A, 234B and 234C of The Income Tax Act, 1961, when no such interest is leviable.
5. The Appellant Company craves leave to add, to amend and/or withdraw any of the ground or grounds of appeal either before or during Appellate Proceedings.”
3. The sole issue raise in this appeal is regarding the rate of interest paid to the related party at a higher rate than the interest paid to unrelated party. The AO noted that the assessee had obtained unsecured loan from holding company Adani Properties Pvt Ltd. at interest rate of 10 15%. The AO alleged that loan from unrelated party was taken @ 8 15% resulting in excess payment and accordingly, made the impugned additions to the income of the assessee. The Ld. CIT(A) confirmed the additions so made by the AO.
Before us, the Ld. AR of Assessee's has made the following submissions:
I. The loan was taken in earlier AY 2020-21 when the Revenue has accepted the interest rate 10.15% implying that the terms of loan were acceptable in earlier year. The transaction was reported in TAR of earlier year It maybe noted that Interest rate charged by banks on secured loan was at 9.45%. An unsecured loan would carry higher rate of interest & the interest rate @ 10.15% is reasonable. In AY 2020-21 the order was passed u/s 143(3) & even under revision proceedings the issue regarding excess payment was not raised.
II. Further the interest charged is fixed and is not a floating rate of interest therefore the rate once considered at arms-length cannot be now treated as excessive
4 III. Just because in the current year the "A" is able to negotiate a deal at lower rate in the current year it cannot be concluded that terms of loan which were accepted in the earlier year by the revenue becomes excessive in the current year.
IV. AO has not brought anything on record to conclude how the rate of interest is above the fair rate except bringing in a comparable rate paid to another party ITAT Ahmedabad in in Virbala Kiritkumar Patel which lays down the principle that initial onus is on the AO to assess fair market price & give comparable cases is relied upon.
We have been apprised that in the earlier assessment year AY-2020-21, the same rate of interest paid by the assessee to the holding company has been accepted and no addition has been made. The issue is also squarely covered in favour of the assessee by the decision of the jurisdictional High Court of Gujarat In the case of CIT vs Sarjan Realities Ltd. [2014] 50 taxmann.com 52 (Gujarat) wherein, the Honorable High Court has held that unless payment of interest was in excess of market rate, merely because assessee paid interest at different rates to different companies, payment of interest could not be held to be excessive and unreasonable
The Ld. DR could not rebut the aforesaid factual submissions made by the Ld. AR.
We, Therefore, do not find any justification on the part of lower authorities in making/confirming the impugned addition, and the same is accordingly ordered to be deleted. In the result, the appeal of the assessee stands allowed.
5 Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 26/02/2026.