M/S SRINIVAS SAREE CENTRE,GULBARGA vs. THE INCOME TAX OFFICER WARD-2, GULBARGA

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ITA 1680/BANG/2017Status: DisposedITAT Bangalore24 November 2017AY 2010-112 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the interest rate of 15% for unsecured loans is not excessive compared to 12% for secured loans, considering the higher risk involved in unsecured lending.

What were the facts?

The assessee claimed interest expenditure at 15% on unsecured loans from relatives of partners. The AO disallowed a portion of this interest, citing that scheduled banks charged only 12% for secured loans.

What were the issues?

Whether the interest paid at 15% on unsecured loans from relatives is excessive and disallowable under Section 40A(2) when scheduled banks charge 12% for secured loans.

Which sections of the Income-tax Act were involved?

Section 40A(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCH ‘SMC-B’, BANGALORE

Before: SHRI A.K.GARODIA, ACCOUNANT MEMBER

For Appellant: Shri P. A. Chillal, Advocate
For Respondent: Shri Palani Kumar, Addl. CIT

O R D E R PER A. K. GARODIA, A.M.: This appeal is filed by the assessee which is directed against the order of CIT (A) – Gulbarga dated 21.06.2017 for A. Y. 2010 – 11.

2.

The assessee has raised as many as 4 grounds but the effective grievance is only one and that is this that the disallowance of Rs. 72,782/- out of interest expenditure by invoking the provisions of section 40A (2) is not justified.

3.

Learned AR of the assessee submitted that as per the AO, the payment of interest by the assessee @ 15% per anumn on borrowings from the relatives of the partners of the assessee firm is excessive because the scheduled banks are charging interest @ 12%. He submitted that the said rate of interest by scheduled banks is for secured loan and the assessee has borrowed unsecured loans but this factual aspect is ignored by the AO. Learned DR of the revenue supported the orders of the authorities below.

4.

I have considered the rival submissions. I find force in the submission of the learned AR of the assessee because the rate of interest in respect of unsecured loan is always higher as compared to secured loan because the lender undertakes extra risk. In this view of the matter, 15% rate of interest for unsecured loan as against 12% for secured loan is not excessive in my opinion. Hence, I delete this disallowance.

5.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on the date mentioned on the caption page.

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