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2021 (2) TMI 1148 - ITAT MUMBAIDisallowance of interest expenditure by applying provisions of section 40A(2)(b) - assessee submitted, the assessee has paid 15% interest on the unsecured loan availed from related parties because they are long term loans compared to short term loans availed from unrelated parties - whether the interest paid by the assessee to the related parties can be considered to be excessive or unreasonable having regard to the fair market value of interest in terms of section 40A(2)(b) ? - HELD THAT:- Rate of interest normally charged by commercial banks on loan varies between 12% to 20%. Further, it cannot be denied that if the assessee would have availed loan from banks and financial institutions, apart from paying higher rate of interest it would have paid additional cost by way of processing charges and would also have been required to furnish collaterals to secure the loan. Whereas, while availing loan from the related parties, which are stated to be long term loans, the assessee neither has to pay any additional cost nor has to furnish any collaterals. Thus, the assessee is rather in an advantageous position as the related parties always run the risk of not being able to recover the loan in case of default. Considering the aforesaid factors, interest paid by the assessee @15% to the related parties cannot be said to be excessive or unreasonable having regard to the fair market value of the goods, services or facility for which the payment is made, in terms of section 40A(2)(b). Difference between the interest paid by assessee at 15% and the reasonable rate of interest ultimately allowed by learned Commissioner (Appeals) at 13.73% works out to a negligible amount of 1.27%. That being the case, in my considered opinion, the provisions of section 40A(2)(b) would not be applicable in the present case. - Decided in favour of assessee.
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