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2014 (1) TMI 1772 - AT - Income TaxAdhoc disallowance @ 50% of the financial charges invoking provisions of section 40A(2)(b) - payment to related parties - Held that:- The undisputed fact remains that the payments have been made to the related parties. It is also settled position of law that for invoking the provisions of section 40A(2), the AO should form an opinion that the charges which have been paid to the related parties are unreasonable and excessive. In the present case, the AO had disallowed the claim on the basis that payments of financial charges aggregating to ₹ 20,70,000/- to the persons specified under section 40A(2)(b) of the Act is somewhat unreasonable having regard to the legitimate needs of the assesseecompany’s business vis-à-vis the benefits derived by or accruing to the assessee-company as a result of such payments of financial charges because the basis of quantification of such payments are not clear and instances of utilization of such services do not fully justify the payment. This finding of the AO was confirmed by the ld.CIT(A) on the basis that the total bank guarantee for the period 1.4.2007 to 31.3.2008 was ₹ 56,500,000/- 1% of such amount comes to ₹ 5,65,000/-. Thus, this a reasonable amount to be paid as guarantee commission to the related parties, on the basis of such payments made by the appellant itself in the earlier year. Balance amount allowed by the A.O. amounting to ₹ 4,70,000/- can be attributed to the amount paid by the appellant on account of interest free fund provided by the related parties from time to time. In page-4 of the paper-book No.2, the assessee has given the utilization of sources under LLMS guaranteed by the parties to whom the financial charges paid. Since this information was not before the authorities below, thus this issue is to be restored to the file of the AO to decide the same afresh in the light of the information furnished - Decided in favour of assessee for statistical purposes only.
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