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2014 (3) TMI 649 - HC - Income TaxDisallowance of excess Interest u/s 40A(2)(a) of the Act - Commercial expediency not proved - Whether the Tribunal was justified in not upholding the disallowance of excess interest u/s 40A(2)(a) sustained by the CIT(A) - Held that - The decision in Commissioner of Income Tax II Versus Southern India Bidi Works Pvt. Ltd. 2014 (3) TMI 145 - GUJARAT HIGH COURT followed - There was no question of law arising - The assessee paid interest in the range of 12% to 18% on unsecured loans - in the business of making beedies finances were needed for steady flow of cash to keep the business going - The interest rates were related to old borrowings - In the earlier years, such interest rate was accepted by the Revenue also, the directors in question were in the highest tax bracket thus, there is no reason to interfere in the findings of the Tribunal Decided against Revenue.
Issues:
1. Disallowance of excess interest under section 40A(2)(a) for the assessment year 2007-08. Analysis: The High Court heard an appeal by the Revenue against a judgment of the Income Tax Appellate Tribunal regarding the disallowance of excess interest under section 40A(2)(a) for the assessment year 2007-08. The main question presented was whether the Tribunal was justified in not upholding the disallowance of excess interest amounting to Rs.11,68,188/-, which was sustained by the CIT(A). In a separate order for the assessment year 2008-09, the High Court had already addressed a similar issue and made observations regarding the disallowance of Rs.9.89 lacs under section 40A(2)(a) of the Income Tax Act, 1961. The Assessing Officer had disallowed the difference of 6% in interest paid to directors on unsecured loans, resulting in the mentioned figure of Rs.9.89 lacs. The CIT (Appeals) upheld this view, but the Tribunal allowed the appeal of the assessee, stating that the interest was not excessive. The Tribunal considered factors such as the consistent interest rate paid in previous years and the tax bracket of the directors. The High Court, after analyzing the facts, concluded that no question of law arose in the case. The interest rates were justified by the need for finances in the business and the tax bracket of the directors. Therefore, the Tribunal's decision was upheld, and the Tax Appeal was dismissed.
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