TMI Blog2009 (1) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's appeal for the asst. yr. 2006-07 directed against the order dt. 3rd Sept., 2008 passed by the learned CIT(A), Bhatinda. The effective grounds raised by the assessee are as follows: 2. That the learned CIT(A) has erred in making the addition in income on account of excessive interest disallowed under Section 40A(2)(b) amounting to Rs. 63,631. 3. That the learned CIT(A) has erred in charging the interest under Sections 234A and 234D of the IT Act vide his demand notice. 2. The AO disallowed interest of Rs. 63,631 paid by the assessee @ 15 per cent per annum to persons specified under Section 40A(2)(b) of the IT Act, holding that the payment of interest @ 15 per cent per annum was unreasonable, since the assessee had paid int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is; that the repayment of such loans was in accordance with the assessee's will and the availability of surplus funds; that as such, the disallowance, as confirmed by the learned CIT(A), is unsustainable in the eye of law; and that the said disallowance be cancelled while allowing the appeal filed by the assessee. 4. The learned Departmental Representative, on the other hand, placing strong reliance on the impugned order, has submitted that the disallowance in question has rightly been confirmed by the learned CIT(A), since whereas the assessee paid 12 per cent interest to unrelated parties, it had paid 15 per cent interest to related parties; that this payment stands directly covered by the provisions of Section 40A(2)(b) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents the case of the assessee falls, has not been stated either by the AO or by the learned 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, as held, inter alia, in the following cases : (1) ITO v. Bansi Lal Gupta (2008) 113 TTJ (Asr) 898 [24 per cent interest paid to persons covered under Section 40A(2)(b) of the Act held not disallowable]. (2) Asstt. CIT v. Alfa Rubber Inds. (2008) 172 Taxman 35 (Asr)(Mag) [21 per cent interest paid to persons covered under Section 40A(2)(b) held allowable]. (3) ITO v. Chamba Mal Roop Chand (1993) 47 TTJ (Ahd) 556 [held that market value of the services and not the individual action of the assessee has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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