D.K. COLD STORAGE & GENERAL MILLS,ALIGARH vs. ITO, BULANDSHAHR

PDF · subscribers
ITA 5111/DEL/2014Status: DisposedITAT Delhi14 October 2015AY 2009-102 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 an interest rate of 18% on unsecured loans is fair and reasonable, especially when bank borrowing rates are comparable. Therefore, the disallowance made by the AO was not justified.

What were the facts?

The assessee paid 18% interest on unsecured loans from related parties. The Assessing Officer disallowed 6% of this interest, considering 12% to be the fair market rate. The CIT(A) upheld this disallowance.

What were the issues?

Whether the disallowance of interest paid to related parties at 18% is justified when the AO considers 12% to be the fair market value.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-2’, NEW DELHI

Before: SHRI J. SUDHAKAR REDDY

This is an appeal filed by the assessee against the order dt. 07.07.2014 of Ld.CIT(A), Meerut for Assessment Year 2009-10. There is a delay of 01 day for filing of the appeal, the same is condoned and appeal admitted.

2.

The sole issue that has to be adjudicated by me is the disallowance of 6% interest paid, u/s 40A(2)(b) of the Income Tax Act, 1961 (the Act). The assessee paid 18% interest on loans taken from two persons who are admittedly covered within the ambit of S.40A(2) of the Act. The A.O. was of the view that interest rate of 12% is the fair market value for interest on loan and hence he disallowed 6% of the interest claimed as excessive payment. The Ld.CIT(A) upheld the same.

3.

I am of the considered view that the disallowance is not called for, as the interest rate of 18% on unsecured loans is fair and reasonable.

ITA 5111/Del/2014 A.Y. 2009-10 DK Col Storage & General Mills Borrowing from banks carries interest costs of around 15% to 18%. Under these circumstances the claim of the assessee is justified. In the result the disallowance is deleted and the appeal of the assessee is allowed.

4.

In the result, the appeal by the assessee stands allowed.

Order pronounced in the Open Court on 14th October,2015.

More judgments on Section 40A(2)(b)

All 1,172 judgments and leading authorities on Section 40A(2)(b) →

Recent GST High Court judgments

Search GST case law →