TMI Blog2010 (8) TMI 978X X X X Extracts X X X X X X X X Extracts X X X X ..... een given to The Sandesh Ltd. at such a high rate. The assessee has given its explanation vide its letter dated 20-12-2007 on the following reasons have been cited :- (a) Sandesh Ltd. is not related to our company. (b) The borrowings were prudent commercial necessity, (c) These are temporary indispensable borrowings. (d) The funds were not available from any source whatsoever, (e) The banks firstly did not advance any funds for construction activities, (f) The fund of ₹ 3.48 crores was received without any security and hence the rate of interest as per the commercial terms is reasonable, (g) The fact that it was a temporary loan and that also without security justifies the rate of interest. 4. The assessee has also given its explanation vide its letter dated 6-12-2007 on the following reasons have been cited : Kindly note that the rate of interest paid on the amount of unsecured loan received from The Sandesh Ltd. during the year was at the rate of 36% per annum we furnish herewith detailed ledger extract of account of Sandesh Ltd. as appearing in our books for Assessment Year 2005-06. Detailed verification of the said account would reveal that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was used for the business purposes of the appellant. The Sandesh Ltd., is not related to the appellant under section 40A(2)(b) of the I.T. Act and hence no interest can be disallowed on this amount, as the loan was taken without offering any security and the appellant had to pay higher rate of interest. Therefore, it was contended that the disallowance made in this respect was not proper and deserves to be deleted. 8. On appeal Learned Commissioner of Income Tax (Appeals) deleted the disallowance. 9. The Learned Departmental Representative supported the orders of the lower authorities. 10. The Learned Authorised Representative of the assessee submitted that the lender company M/s. Sandesh Ltd., is not related to the assessee. The borrowings were prudent commercial necessity. These were temporary indispensable borrowings. The funds were not available from any other source the Banks did not advancer any fund for construction activity. The funds of ₹ 4.38 cr. was received without any security and hence the rate of interest was as per commercial terms was reasonable. The money borrowed was utilised for the purpose of urgent business needs. Interest has been paid on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowed by the assessee for the purpose of business, and the amount of interest was paid, they have no jurisdiction to determine whether the rate of interest agreed to be paid was reasonable or not, and to disallow a portion of the interest which has been paid. 4.)CIT vs. Gopalkrishna Murlidhar 47 ITR 469 (AP) The assessee, a Hindu undivided family, which carried on business on an extensive scale with a capital of about ₹ 20 lakhs, made large borrowals during the relevant year for the purposes of the business and paid interest amounting to ₹ 93,611. In the course of the year monies amounting to ₹ 1,77,984 were withdrawn from time to time for household expenses. The question was whether a part of the interest paid on borrowed capital could be disallowed: _Held,_ that, as the amounts were borrowed for the purposes of the business of the family and as no particular sum purporting to be borrowed on behalf of the business was spent for household expenses and the family was entitled to withdraw from the capital supplied by it thereby depleting the capital, the fact that part of the amounts borrowed was later on used for personal expenses did not deprive the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 74 ITR 723 (Bom) relied on. 12. We have heard the rival submissions and perused the materials available on record. In the instant case the undisputed facts of the case are that the assessee has paid interest of ₹ 66,71,000 to M/s. The Sandesh Ltd. in respect of unsecured loan availed by the assessee and such interest worked out to 36% per annum. According to the Learned Assessing Officer the rate of interest was exorbitant and he considered rate of 18% as reasonable and therefore disallowed ₹ 33,35,000/- interest expenditure claimed by the assessee. The Learned Commissioner of Income Tax (Appeals) deleted the above disallowance by observing as under:- I have considered the facts of the case and the submissions and I am in agreement with the view of the assessee. It is seen that the loan was taken without giving any security and the party from whom the unsecured loan was obtained is in no way related to the assessee. Since the fund was urgently needed for its business and there was no option left with the assessee to obtain a loan from bank or any other institution by offering a security and the loan was fully utilised for its business, I am of the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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