TMI Blog2011 (11) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2 In doing so, the ld. CIT(A) has erred in law and in facts in not appreciating that the transactions to be written off need to be in the nature of trade debts only and in the absence of any evidence in support of the same, the deduction could not have been allowed u/s 36(1)(vii) of the Act. 2. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 3,78,699/- made by the AO by invoking the provisions of section 40A(2)(b) of the Act. 2.2 In doing so, the ld. CIT(A) has erred in law and on facts in holding that the interest paid @ 24% to the related parties cannot be treated as excessive. 2. The first effective ground relates to deletion of disallowance of bad debts written off ₹ 16,47,827/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant mainly for weight loss. The ld. AR further submitted that these debts have been written off in the books of accounts of the assessee during the year under consideration. I am of the considered opinion that the facts of the case are squarely covered by the decision of Supreme Court in the case of TRF Ltd. vs. CIT reported in 323 ITR 397. In this case the Supreme Court categorically held that post 1st April 1989, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In view of the discussions held above and particularly with reference to the decision of the Supreme Court, the addition on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid interest of ₹ 17,04,143/- to 9 related parties covered u/s 40A(2)(b) of the IT Act at the rate of 18% whereas the assessee had paid interest @ 14% to other parties. In other words, the assessee had paid 4% unreasonable/excessive interest to related parties. Therefore, he issued show cause notice dtd.17.12.2009 asking the assessee to show cause why the excess interest paid of ₹ 3,78,699/- should not be added to the total income u/s 40A(2)(b) of the IT Act. 6.1 In reply to the show cause notice, the assessee vide letter dtd.21.12.2009 has inter alia contended as under - Your show cause notice dated 17/12/2009 is received. With regards to the notice, we give our submission as under : We have debited interest expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee made detailed submissions which are narrated by the ld. CIT(A) from pages 9 to 13 of his order. After considering the contention of AO and the submissions of the assessee the ld. CIT(A) deleted the addition. Against the deletion of the addition by ld. CIT(A) the Revenue is in appeal before the Tribunal. 7. The ld. DR relying on the order of AO submitted that assessee had paid interest of ₹ 17,04,143/- to 9 related parties covered u/s 40A(2)(b) of the Act at the rate of 18% whereas the assessee had paid interest @ 14% to other parties. Thus the assessee had paid 4% excessive interest to related parties. Therefore, by issuing show cause notice to the assessee and considering the reply of the assessee the AO had disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere as bank has been paid interest @ 13%, which works out to around @ 15%, after adding other charges etc. We are of the view that bank borrowings are available only against proper securities and after compliance of many legal formalities On the cither hand borrowing from relatives are available on very short notice, and without any security. The extra payment of interest @ 3% to 4% is as per prevailing market rate. We further find that in Asst. Year 2004-05 the same parties were paid interest @ 24% which had been accepted by the AO. In A,Y, 2006-07 also the interest paid to those parties were @ 24%, We find that during the year under consideration the interest has been reduced from 24% to 18% and which is reasonable and should not have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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