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2020 (10) TMI 1022 - AT - Income TaxDisallowance of interest paid on unsecured loans taken from specified persons - Addition holding the same to be in excess of the fair market rate as per section 40A(2)(b) - Revenue restricting the same to 12% as against 18% claimed by the assessee - HELD THAT:- We find merit in the contention of the Ld. Counsel of the assessee that its claim of 18% rate of interest, paid on unsecured loans taken from specified persons, as the market rate of interest was justified and hence allowable as per section 40A(2)(b) of the Act. None of the factual contentions of the assessee to justify its claim ,we find, have been rebutted by the Revenue. Assessee had justified its claim contending that unsecured loans stood on a totally different footing as compared to secured loan taken from banks, by way of the banks charging interest periodically resulting in compounding of interest and hence higher effective rate of interest ,of banks taking guarantee for the loans given, and charging insurance and processing charges for the same, all of which are not found in the case of unsecured loans taken from private parties, thus justifying a higher rate of interest as compared to banks/NBFC; that generally the rate of interest on unsecured loans is BPLR +2 to 4% and that in the impugned year the SBI BPLR was 14.5% and further that the assessee itself had paid interest @ 14.5% on a loan taken from an NBFC. It was also duly demonstrated that in the preceding year the AO had accepted 18% as the market rate of interest on unsecured loans after duly examining the issue during assessment proceedings.None of the aforesaid facts have been controverted either by the Ld.CIT(A) or by the Ld.DR before us. The disallowance of interest therefore made by restricting the rate of interest to 12% under section 40A(2)(b) is therefore directed to be deleted. - Decided in favour of assessee.
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