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2009 (1) TMI 357 - AT - Income TaxDisallowance u/s.40A(2)(b) - Addition of excess interest paid to the related parties - difference between the interest paid to related partis and to unrelated parties - AO was of the opinion that payment of 15 per cent interest per annum to related parties was excessive as compared to payment of 12 per cent interest per annum to unrelated parties. HELD THAT:- There is no dispute that the payment of interest @ 15 per cent per annum by the assessee was to persons specified in s. 40A(2)(b). As per the provisions of Section 40A(2)(a), disallowance can be made where the AO is of the opinion that the expenditure in respect of which payment had been made to any person referred to in Section 40A(2)(b), 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 therefrom - In the present case, AO was of the opinion that payment of 15 per cent interest per annum to related parties was excessive as compared to payment of 12 per cent interest per annum to unrelated parties. However, the requirement of s.40A(2)(a) is that the opinion of the AO regarding the expenditure for excessive or unreasonable must be having regard to the fair market value of the goods/services/facilities for which the payment is made or the legitimate needs of the business of the assessee or benefit derived by or accruing therefrom. As to under which of these requirements the case of the assessee falls, has not been stated either by the AO or by the ld CIT(A). So far as regards the fair market value, it is undeniable that 15 per cent interest per annum is neither excessive nor unreasonable. Moreover, as held in S.A. Builders Ltd. vs. CIT [2006 (12) TMI 82 - SUPREME COURT], the Revenue cannot justifiably claim to put itself in the armchair of the businessman and assume the role to decide as to how much expenditure is reasonable having regard to the circumstances of the case; no businessman can be compelled to maximize his profit; the IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act; and that the authorities must not look at the matter from their viewpoint, but that of a prudent businessman impelled by commercial expediency. In view of the above, finding merit in the grievance of the assessee, we hereby accept the same. As such, the order of the ld CIT(A) is set aside and disallowance made by the AO and confirmed by the ld CIT(A) is cancelled. Appeal of the assessee is allowed.
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