TMI Blog2022 (3) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... onable is liable to be disallowed u/s 40A(2) of the Income-tax Act. Therefore it is precondition for making the disallowance u/s 40A (2) that the AO has to arrive to the conclusion that the amount paid by the assessee is excessive or unreasonable in comparison to the fair market value/price. In the case in hand, the AO has not carried out such exercise to first determine the fair value of interest rate in question by bringing any comparable instance/case So, naturally and undisputedly it would be for the business purpose only. Therefore, in our considered opinion that lower interest received on loan given to related party for business purpose cannot be subjected to provisions of section 40A(2)(b) of the Act. In the present case, having r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details of interest paid and interest received, it was found that out of total interest paid, the amount of ₹ 1,27,09,707/- was paid to the related parties and the interest was paid @ 15% whereas, the loan was given to the firm, wherein the assessee is a partner @12%. Therefore, the AO enquired from the assessee as to why the excess interest paid to the related parties should not be disallowed. The assessee explained the difference between the rate of interest on loan received and paid and submitted that the assessee being a partner in M/s. Aditya Developers , could not have charged more than 12% as per section 40(b)(iv) of the I.T. Act, 1961. The assessing officer vide order dated: 19-12-2016 did not accept the claim of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually lent by the assessee for making disallowance under section 40A2)(b) is misconceived. 7. The Ld. DR, on the other hand, vehemently relied up on the orders passed by the A.O. and the CIT (A). 8. We find that in the case of Motilal Laxmichand Sanghv vs ACIT in ITA Nos 3110, 3111 3112/Mum/2018, the co-ordinate bench of the Tribunal, vide order dated 26/07/2019 has held that the Assessing Officer must form an opinion objectively on the basis of material brought on record to demonstrate that the payment made by the assessee is excessive and unreasonable having regard to the market rate. No doubt, in the facts of the present case, the first condition of section 40A (2) of the Act has been fulfilled as the assessee has made loans to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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