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2015 (4) TMI 585 - AT - Income TaxAddition on account of inventory mis-match w.r.t stock statement submitted to bank - Dis-allowance of Interest u/s 40A(2)(a) - Interest paid on unsecured loans in excess of fair market rate i.e. bank rate - Held that:- In a given case, an assessee may satisfactorily explain the difference in the stock figure/s furnished to the bank and that disclosed by its final accounts, in which case no case for addition would arise. Why, in the instant case the assessee has even failed to show that the same, i.e., the stock as disclosed, actually matches with that reflected by its books. Reliance on case law would thus be of little moment; our decision being based on firm findings of fact, based on the material on record, as it ought to be. It would, therefore, all depend on the facts of the case - the question to be decided is whether the excess stock is inferable in the facts and circumstances of the case and, two, if the assessee has been able to satisfactorily explain the same, i.e., in case of a difference, the answers to which in the present case are ‘yes’ and ‘no’ respectively. We decide accordingly, and the assessee fails. The bank rate is not strictly comparable, and some leverage would have to be allowed between the interest rate to the bank and that to the private parties, which is on an unsecured basis, even though in the instant case the same stands given by related parties to their own concerns, so that it serves a common purpose or mutual interest. That is, the said rate yet cannot form a suitable basis to arrive at the fair market value of the interest rate for unsecured loans. In our view, on the balance, a premium of 25% (on the bank rate) would be more than adequate. Accordingly, the excess interest rate be worked out by applying a factor of 1.25 to the average bank interest rate, i.e., for term finance, as obtaining for the relevant years. A bank rate of 12% p.a. (say) would accordingly yield an excess interest rate of 6% p.a. (21 - 12 x 1.25). We decide accordingly, and the assessee gets part relief. - Decided partly in favour of assessee.
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