MADHU ENTERTAINMENT & MEDIA LTD,MUMBAI vs. ITO 16(1)(2), MUMBAI

In this case, the assessee has taken unsecured loan from two directors and paid them interest @ 18% and 21% respectively. The Assessing Officer has held that the amount of interest paid in excess of the rate of 12% is not reasonable. Hence, he disallowed the balance portion of interest paid at the rate of 18% and 21% to two persons which resulted in the addition to income at Rs.4,45,558/- and Rs.89,500/- in the respective assessment years. The ld. CIT(A) has confirmed the assessment order. The ld. Counsel of the assessee submitted that this exact issue was considered by the Tribunal in assessee’s own case, in for A.Y. 2010-11 vide order dated 09.05.2017. The tribunal had held as under: We have heard the rival contentions of both the parties. Looking to the and circumstances of the ease, we find that the assessee has paid the interest at the rate of 18% to one Mr. Hirachand Dand and he has also paid the interest at rate of 21% to Mr. Pratik H Shah. The assessee has taken the contention that the borrowing from the bank may cost around 16% plus processing fee and bank insists on securities and loan from related is unsecured and no securities need to be given and further, loan from related party is for temporary period. We find that similar issue had come up before Ahmedabad Tribunal in the ease of Vipul Y. Mehta Vs. AC'IT in ITA No.860/Ahd/2010 u herein the Tribunal has held that considering the facts of the case and argument of both the sides, the payment of interest at the rate of 18% per annum on loan taken from a related person cannot be said to be excessive and unreasonable. Moreover, the I d. A.R. also relied upon the decision in the case of Omkarmal Gaurishanker vs. ITO TTJ (Ahd.) 223 wherein the Tribunal held that interest paid to relative at the rate of 24% lo be reasonable. We find that in the instant case, assessee has paid interest at the rate of 18% to Mr. Hirachand Dand and 21% to Mr. Valik Shah, both are directors of the company and assessee has taken the loan for business purposes. Therefore, we are of the view that the ld. CIT(A) is not justified in not allowing the excess rate of interest than 12%. Therefore, we allow the appeal of the assessee.