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2015 (10) TMI 2767 - AT - Income TaxAddition u/s 40A(2)(b) towards interest paid on loans - whether the interest paid @ 15% to related parties can be considered as excessive and unreasonable to invoke the provisions of section 40A(2)? - HELD THAT:- As per the provisions of section 40A(2) of the Act the Assessing Officer has to establish on record that the payment made by the assessee is unreasonable and excessive compared to the market rate. Nowhere in the assessment order, has the Assessing Officer brought any material to establish the market rate of interest on such types of loan. Commissioner (Appeals) has also ignored this aspect. Therefore, there is no reason why interest payment to related party should be confined to 12.6%. More so, when the loans are not secured against any asset unlike bank loans and the lender always runs a risk of recovery of loan, therefore, charges interest at a bit higher rate. The decision cited by the learned Authorised Representative also supports this view. Moreover, it is a fact on record that the assessee has paid interest @ 15% even to unrelated parties. That being the case, interest paid @ 15% to related parties should be allowed. Ground raised by the assessee is allowed and grounds raised by the Revenue are dismissed.
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