S. 40A(2)(b) Interest Payment at 15% to related parties is not excessive

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ITAT AHMEDABAD, “A” BENCH

ITA No.2370/Ahd/2010

[Asstt. Year : 2007-2008]

Shri Hitesh Narendrabhai Shah (HUF) Vs. ITO

 

Only reason advanced for making disallowance out of the interest paid to two coparceners was that the interest paid to other parties was at 12% per annum. We find that the interest paid to two coparceners at the rate of 15% could not be said to be excessive, considering the prevailing rate of interest during the relevant assessment year 2007-2008. Once it is found that the rate of interest paid to two coparceners at 15% is not excessive, no disallowance could be made by invoking the provisions of Section 40A(2)(b) of the Act. The loans raised from two coparceners could be safely relied upon by the assessee-HUF as the coparceners may not demand the amount of loan back in the near future and the level of confidentiality is obviously more with regard to these coparceners. In view of the fact that the interest paid to coparceners at the rate of 15% could not be said to be excessive, we hold that the provision of Section 40A(2)(b) was wrongly invoked in this case. Accordingly, the addition of Rs.42,1 12/- is deleted and the ground of the appeal of the assessee is allowed