TMI Blog2015 (10) TMI 2767X X X X Extracts X X X X X X X X Extracts X X X X ..... is aspect. Therefore, there is no reason why interest payment to related party should be confined to 12.6%. More so, when the loans are not secured against any asset unlike bank loans and the lender always runs a risk of recovery of loan, therefore, charges interest at a bit higher rate. The decision cited by the learned Authorised Representative also supports this view. Moreover, it is a fact on record that the assessee has paid interest @ 15% even to unrelated parties. That being the case, interest paid @ 15% to related parties should be allowed. Ground raised by the assessee is allowed and grounds raised by the Revenue are dismissed. - ITA no.705/Mum./2018, 733/Mum./2018 (Assessment Year : 2013–14) - - - Dated:- 5-10-2015 - Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties should not be taken @ 6%. In response, it was submitted by the assessee, interest paid @ 6% to one unrelated party is due to the fact that the said unsecured loan was for short term and has to be paid back on demand. It was submitted, the rate of interest at which the assessee availed the unsecured loans even from related parties is as per the market rate, hence, cannot be considered excessive or unreasonable. It was submitted, even the banks while providing working capital facilities to real estate enterprises charged interest @ 18% per annum. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, interest paid @15% to related parties is excessive and unreasonable, hence, covered under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 40A(2) of the Act to the related parties only. Further, the learned Commissioner (Appeals) observed, the average rate of interest paid to unrelated parties works out to 12.6%. He, therefore, directed the Assessing Officer to apply the same rate of interest to the unsecured loans availed from related partites while applying the provisions of section 40A(2) of the Act. Being aggrieved with the aforesaid decision of the learned Commissioner (Appeals), both the assessee and the Revenue are in appeal before the Tribunal. 5. The learned Authorised Representative submitted, during the relevant assessment year the assessee has availed unsecured loans from eight parties out of which three are related parties as defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in subsequent assessment years the Assessing Officer has accepted interest payment @ 15% on the unsecured loans taken from related parties. In this context, he drew our attention to the assessment orders passed under section 143(3) of the Act for the assessment years 2014 15 and 2015 16. Further, she also relied upon the decision of the Hon'ble Gujarat High Court in case of PCIT v/s Cama Hotels Ltd., [2016] 68 taxmann.com 153 (Guj.). 6. The learned Departmental Representative relying upon the observations of the Assessing Officer submitted that the assessee having paid interest @ 6% to one party, the Assessing Officer was justified in applying the same rate to the interest paid to the related parties. 7. I have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has paid interest to unrelated parties mostly @ 15%. The assessee has also demonstrated that the interest payment @ 15% to related parties is neither unreasonable nor excessive considering the interest charged by Bank @ 18% while providing working facility loan to real estate enterprises. The aforesaid contention of the assessee has also not been controverted. The most crucial factor which needs to be considered is, as per the provisions of section 40A(2) of the Act the Assessing Officer has to establish on record that the payment made by the assessee is unreasonable and excessive compared to the market rate. Nowhere in the assessment order, has the Assessing Officer brought any material to establish the market rate of interest on suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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