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2015 (11) TMI 1210 - AT - Income TaxAddition u/s. 40A(2)(b) - whether in view of the specific instances pointed out by the AO in the assessment order, the interest paid by the assessee @ 15% to four related persons was excessive - Held that:- We are unable to accept the contention of the ld.counsel for the assessee that on short-term deposits, the assessee had paid at a lower rate of interest. The ld.CIT(A) deleted the addition on the basis that the Tribunal has allowed the interest even @18% and @ 24% respectively. We are of the view that the AO has to point out not merely on the basis of inter se payment of interest, but the prevalent market rate. As per provisions of section 40A(2)(a) of the Act, the disallowance can be made where the assessee incurs any expenditure in respect of payment has been or is to be made to any person referred to in clause (b) of this subsection, and the AO is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. In the given case, the AO has not given any finding in respect of fair market rate of interest paid by the assessee. Under these facts, we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. - Decided against revenue. Valuation of opening stock and closing stock of V- 6 Type SB/12-5 Water Pump and V-6 Type SB/12-6 Water Pump - contention of the assessee is that the difference in the opening and closing stock was due to change in the material utilized for manufacturing of the pump and, therefore, naturally cost of manufacture would decrease - Held that:- The Assessing Officer has simply compared the valuation of items in the opening stock and closing stock without appreciating the difference in the quality of raw material used in the manufacture of submersible pumps which was changed from gun metal to stainless steel. It shows that the Assessing Officer has not taken into consideration the full facts with regard to valuation of stock. Under the circumstances, the addition made by the AO towards under-valuation of two items of water pumps is hereby deleted. - Decided against revenue. Development agreement addition - Held that:- The appellant was entitled to development charges only on the construction cost as per the resolution of the society from time to time, it has no relevance with the collections from the members. AO was not justified in holding the development charges at 10% of the total receipts from the Members as well as making addition of the entire difference to the total income of the appellant in this year and hence, both the additions are hereby deleted. - Decided against revenue.
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