DCIT Vs. Prem Kumar Gupta (ITAT Delhi)
Hon’ble Delhi ITAT held that there is difference between loan taken from Banks and unsecured loans taken from the relatives. In the case of unsecured loans from the relatives, no formalities and bank guarantee have to be given. Thus the Hon’ble Tribunal has held 15% interest paid on unsecured loans taken as highly reasonable.
In the instant case,the assessee had paid interest @ 15% per annum to the persons covered under section 40A(2)(b) of the I.T. Act. The same was disallowed by the Ld AO by treating it as excessive. It was argued that the interest paid to unsecured loans cannot be compared with the loan from banks. As the bank loans are fully secured, there is no security for unsecured loans taken from relatives. Further, there are no other formalities as in case of bank loans. The Ld. CIT(A) referred to decision of ITAT, Ahmedabad Bench in the case of Shri Hitesh Narendrabhai Shah (HUF) vs., ITO in ITA.No.2370/Ahd/ 2010 in which it was accepted the rate of interest of 15% paid to persons covered under section 40A(20(b) of the I.T. Act, is reasonable. In an another decision of the ITAT Ahemdabad Bench in I.T.A.No.2245/AHD./2010 in the case of ACIT vs M/s. Raj Steel Industries as referred to in which interest paid at 18% was found justified. The Ld. CIT(A), therefore, found that interest paid on unsecured loans @ 15% p.a. is on much lower side. It was also noted that all the recipients of the interest are assessed to tax @ 30% and as such there is no loss to the Revenue. The Ld. CIT(A), accordingly, deleted the addition.
The same has been upheld by honble tribunal as under:-
“6. Considering the rival submissions, we do not find any merit in this ground of appeal of Revenue. There is difference between loan taken from Banks and unsecured loans taken from the relatives. In the case of unsecured loans from the relatives, no formalities and bank guarantee shall have to be given. 15% interest paid is highly reasonable. The Ld. CIT(A) rightly appreciated that the Tribunal in other cases have allowed even much higher rate of interest paid to the relatives. This ground of appeal of Revenue has no merit and the same is accordingly dismissed.”
