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M/s. B.P. Chemicals Versus Commissioner of Income Tax-13 (2) , Mumbai

Disallowance of interest payment to family members by invoking provisions of section 40A(2)(b) - loan from the family members and relatives - Held that:- The assessee as well as the relatives, to whom assessee has paid interest are being taxed higher rates, the entire exercise undertaken by the Assessing Officer is neutral exercise as far as the payment of tax is concerned and there is no question of evading of payment of tax by any of the parties. Further, Hon'ble Bombay High Court in CIT vs. G .....

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by : Shri Premand J. ORDER PER MAHAVIR SINGH, J.M: This appeal by assessee is arising out of order of CIT(A)-24, Mumbai in Appeal No.CIT(A)-24/JCIT 13(2)/147/11-12 order dated 18/10/2012. Assessment was framed by JCIT, Range-13(2), Mumbai for the assessment year 2009-10 under section 143(3) of the Income Tax Act, 1961 (hereafter referred as the Act ) vide his order dated 14/11/2011. 2. The only issue in the appeal of the assessee against the order of the CIT(Appeals) confirming the disallowance .....

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family members at 12%. For this he has also relied on ITAT order in assessee s own case for assessment year 2004-05. Aggrieved, assessee preferred an appeal before CIT(A). 4. The CIT(A) relying on ITAT decision in assessee s own case for assessment year 2004-05 confirmed the action of the Assessing Officer by observing in Para 3.3.4 as under:- 3.3.4 The issue relating to genuineness of the payment of interest is not relevant while deciding the amount of deduction allowable to the assessee u/s 4 .....

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easonable and the findings of the Hon'ble Tribunal in the case of the assessee itself for the A.Y. 2004-05 on the same set of facts. Charging of interest at a given rate from trade debtors cannot be taken to be the market rate for the purposes of loans since these are not comparables. The assessee has not been able to demonstrate as to how the interest rate of 18% was the market rate . Aggrieved, now assessee is in second appeal before the Tribunal. 5. We have heard the rival contentions and .....

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High Court, wherein the substantial question of law on this issues has been admitted by Hon ble High Court. He also argued that the Tribunal has not considered the decision of Hon'ble Bombay High Court in the case of CIT vs. Indo Saudi Services (Travel) Pvt. Ltd. 310 ITR 306(Bom), wherein CBDT Circular No.6-P dated 06/07/1968 was considered, wherein the Board has taken categorical view that no disallowance is to be made in respect of interest payment to sister concern where there is no atte .....

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According to the Ld. Counsel for the assessee, the interest payment was genuine and incurred wholly and exclusively for the purpose of business and the lower authorities have not elaborated that how this expenditure of interest is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made. 6. On the other hand, Ld. Sr.DR argued that this issue is covered by the Tribunal s order in assessee s own case for assessment year 200 .....

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of the payees are taxed in highest tax bracket and there is no attempt made by the assessee to evade tax by excessive payment to related parties. We find that the assessee has been paying such interest to some of the parties right from the beginning and in the past no such disallowance was made by the Department i.e. the Assessing Officer while framing assessment under section 143(3) of the Act himself has allowed interest at 21% to the assessee for the assessment year 2001-02 and 2002-03, we a .....

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entioned that in case of late payment interest @18% to 26% to be charged. Similarly, he has also explained that the assessee itself has stipulated the charging of interest @24% from its customers for late payment. Before us Ld. Counsel for the assessee also explained that the interest rate charged by banks @ 12% to 15% on C.C limits or bank loans, which includes some other hidden charges and it is also fact that bank while sanctioning loan put quite onerous liabilities like submission of stock s .....

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