Payment of little higher rate of interest on unsecured loans justified as it involves lesser formalities

DCIT Vs. M/s. Ahmedabad Strips P. Ltd. (ITAT Ahmedabad)

 We have duly considered rival contentions and gone through the record. There is no dispute with regard to the fact that creditors do fall within the category of specified persons contemplated in section 40A(2)(b) of the Act. Short question before us is, whether payment of interest at the rate of 18% to such persons on the loans availed from them is excessive or not, having regard to the fair market value of such loans. No doubt, the AO took into consideration interest rate at 12%. This is the rate on which banks used to grant small time loans. This rate was also keeps on fluctuating from 12% to 14%, but it is to be kept in mind that loans availed by the assessee were unsecured loans. It has avoided a large number of formalities, such as, giving securities, pledging something etc. In such situation a little payment of higher rate of interest could not be termed as excessive. Therefore, we are of the view that the ld.CIT(A)has rightly deleted the dis allowance.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

Revenue is in appeal before the Tribunal against orders of ld.CIT(A)- 1, Ahmedabad dated 19.2.2015 and 24.4.2015 passed for the Assessment Year 2010-11 and 2011-12 respectively. On receipt of notice in the Revenue’s appeal, the assessee has filed Cross Objection bearing CO No. 124/Ahd/2015 and 148/Ahd/2015 for the Assessment years 2010-11 and 2011-12 respectively.

2. First we take appeals of the Revenue.

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