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2018 (4) TMI 1870 - ITAT AHMEDABADAddition u/s 40A(2)(b) - interest paid to directors in excess of interest paid to other parties - AO noticed that the assessee inter alia paid interest to directors of the company at higher rate of 18% p.a. whereas the assessee has also paid interest on borrowed funds at lower rate of 11% - 13% to other parties - as per AO nearly 5% has been paid to the directors in excess of fair market value of lending rate and consequently quantified the disallowance of excess interest with the aid of section 40A(2)(b) - CIT-A confirmed case of the assessee for non-applicability of section 40A(2)(b) - HELD THAT:- We find substance at the first instance on the plea paddled on behalf of the assessee that interest rate @ 18% cannot be seen as excessive or unreasonable having regard to the fact that the assessee has incurred interest costs at the similar rate on borrowed funds from uncontrolled parties. This fact itself proves the case of the assessee in affirmative. The revenue has not been able to counter this aspect of justification for making payment of interest alleged at higher rate qua other lenders. Therefore, we do not consider it necessary to look into the other plea of the assessee on requirement of determination of market rate of interest independently. In view of the aforesaid discussion, we do not find any infirmity in the order of the CIT(A) in drawing conclusion in favour of the assessee.
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