THE ITO, 2(1), UJJAIN vs. SHRI BABULAL JAIN, UJJAIN

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ITA 272/IND/2017Status: DisposedITAT Indore26 May 2017AY 2009-104 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to restrict the addition to Rs. 12,221/- by accepting 16% as a reasonable interest rate for loans from specified persons. The CIT(A) had considered the difficulties in obtaining loans from financial institutions and limited security options.

What were the facts?

The Assessing Officer disallowed a portion of interest paid by the assessee to relatives, considering the rate of 18% excessive and deeming 12% as reasonable. The CIT(A) reduced the disallowance by accepting 16% as a reasonable interest rate.

What were the issues?

Whether the interest paid to relatives at 18% was excessive and if 16% is a reasonable rate of interest for such transactions.

Which sections of the Income-tax Act were involved?

Section 40A(2)(a)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI C.M.GARG & SHRI O.P.MEENA

Hearing: 26.05.2017

आदेश /O R D E R

PER O.P.MEENA, ACCOUNTANT MEMBER: 1. This appeal is filed by the Revenue and is directed against the order of learned Commissioner of Income tax (Appeals)-, Ujjain, [in short referred to as the CIT (A)] dated 06.01.2017 for assessment year 2009-10.

Babulal Jain / I.T.A. No.272/Ind/2017/A.Y.:09-10 Page 2 of 4

2.

The sole ground relates to restricting the addition of

Rs. 1,09,993/- to Rs. 12,221/- made on account of interest

paid to various relatives.

3.

Briefly stated the facts of the case are that the AO noticed

that the assessee has paid interest payment to persons covered

u/s 40A(2)(a) @ 18% per annum which was considered to be

excessive as the reasonable rate of interest was 12%. Accordingly,

the AO worked out excess interest of Rs. 1,09,993/- by

considering the interest rate at 12% and accordingly, disallowed

the same. 4. Being dissatisfied with the order, the assessee has carried

the matter before CIT(A). It was contended before the CIT(A) that

16% interest rate is reasonable rate, hence, the addition is made

over this percentile i.e. 2% (18-16) is held to be justified by the

CIT(A) for assessment year 2010-11 in appeal no. U-74/2013-14.

Accordingly, the CIT(A) observed that the AO has merely relied

that the appellant has paid higher rate of interest to the family

members but failed to consider the difficulties in obtaining the

loan from bank or financial institutions and limited security

options. The borrowing from markets depends on the relations

only and which is limited for borrowing huge amount. The

Babulal Jain / I.T.A. No.272/Ind/2017/A.Y.:09-10 Page 3 of 4

appellant is paying interest to the non-specified persons quarterly

whereas the interest payable to specified persons is credited to

the account of respective persons at the year end. The CIT(A) has

noted that there is no material on record which shows that the

funds are not utilized for business. The CIT(A) has also noted

that the Hon'ble Jurisdictional Tribunal and many other

Tribunals are already held interest payment @ 16% as reasonable

rate of interest. Accordingly, the CIT(A) has confirmed the

addition amounting to Rs. 12,221/- being interest @ 2% and

allowed relief of Rs. 97,772/-. 5. Being dissatisfied with the findings of the CIT(A) the

Revenue has filed this appeal before us. There is none appeared

from the side of assessee whereas the Ld. Sr. DR has relied on

the order of the AO. 6. We have considered and perused the material on record. We

find that the Ld. CIT(A) has considered the rate of interest @ 16%

as reasonable for specified persons in the case of assessee for

assessment year 2010-11 decided in appeal no. U-74/2013-14.

The CIT(A) considering the facts and relying the orders of

Tribunals held that the interest payment rate @ 16% as a

reasonable rate of interest and allowed the resultant relief to the

Babulal Jain / I.T.A. No.272/Ind/2017/A.Y.:09-10 Page 4 of 4

assessee. Considering the circumstance of fact we find no

infirmity of the order of the Ld. CIT(A), hence, no inference is

called for in the order of the Ld. CIT(A). Accordingly, same is

upheld and the appeal of the Revenue is dismissed.

7.

In the result, the appeal of the Revenue is dismissed.

8.

This order has been pronounced in the open court on

26.05.2017

Sd/- Sd/- (O.P.MEENA) (C.M. GARG) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 26.05.2017 Sb*

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