TMI Blog2012 (7) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... ive rate of interest in case of directors covered u/s 40A (2) (b) - Held that:- The rate of interest between 15% to 18% was allowed by the AO in the preceding assessment years which is also reasonable in view of prevailing market rate - As during the year the assessee has taken loan of Rs.12 lacs which was utilized for purchase of raw materials and same is not connected with the old business and also manufacturing has not been started during the year. Therefore, the AO is directed to re-calculate the disallowance of interest on Rs.12 lacs only on the basis of interest paid or provided in the loan account - against revenue. - ITA No.893/Ahd/2012 - - - Dated:- 29-6-2012 - S/SHRI D. K. TYAGI, AND T. R. MEENA, JJ. Appellant by Dr. Jayan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutiny assessment for A.Y.2007-08, different view cannot be taken in subsequent years. 2. The main issue in this appeal is disallowance of interest of Rs.34,34,050/- and excessive rate of interest in case of directors covered u/s 40A (2) (b) of the IT Act. 3. The first ground of appeal is against deleting addition by the learned CIT(A) of Rs.34,34,050/- on account of interest expenses. The factum matrix of the case is that the assessee was distributor of the products of Unjha Unjha Pharmacy in the preceding assessment years but in the year under consideration 2008-09 it had been subletting to two companies namely Unjha Pharma and Unjha Pharmaceuticals. The assessee was getting commission @11% on total purchases. There was no purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. There is no change of the fact. After considering the reply of the assessee on page 3, 4 and 5, the learned AO accepted loan of Rs.12 lacs for new business which has not been started during the year under consideration and rate of interest to the directors and family members was between 15% to 18% covered u/s 40A (2) (b) of the Act and disallowed the interest of Rs.34,34,050/- as not found to be for business purposes. 4. Being aggrieved by this order the assessee filed first appeal before the learned CIT(A), Gandhinagar, Ahmedabad who had adjudicated the appeal vide order dated 09-01-2012. The learned CIT(A) has summarized the grounds of appeal in three forms which are as under: i) Is the interest paid on old loans utilized for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) had not found this business inter-connected, interlacing, inter-dependent and unity embracing the different lines of business activities of the earlier years. Therefore, he confirmed the interest on Rs.12 lacs borrowed during the year. Similarly, he also accepted the rate of interest between 15% to 18% which was disallowed by the AO u/s 40A (2) (b) of the Act as the same interest rate had been applied and allowed by the AO in scrutiny assessment in preceding assessment years. 5. Now, the revenue is in appeal before us on same set of grounds of appeal as were before the learned CIT(A). The learned DR vehemently argued that the assessee has closed down its business; therefore, interest was not for the business purposes and is not all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been recovered during the year due to the financial position of the debtors. The assessee s business is interconnected, interlacing, inter-dependent and there was one unit. Therefore, we confirm the deletion made by the learned CIT(A) on old loans, but during the year the assessee has taken loan of Rs.12 lacs which was utilized for purchase of raw materials and same is not connected with the old business and also manufacturing has not been started during the year. The rate of interest between 15% to 18% was allowed by the AO in the preceding assessment years which is also reasonable in view of prevailing market rate. Therefore, the AO is directed to re-calculate the disallowance of interest on Rs.12 lacs only on the basis of interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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