2012 (3) TMI 722 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) confirming addition of excessive interest u/s 40A(2)(b) for Assessment Year 2005-06.

Summary:
The appeal by the assessee was directed against the order of the CIT(A) regarding the addition of excessive interest u/s 40A(2)(b) of the Act for Assessment Year 2005-06. The counsel of the assessee argued that the issue was similar to the one in the preceding Assessment Year 2004-05, where the addition made by the AO was deleted by the CIT(A) and no further appeal was filed by the Revenue. The Tribunal noted that in the previous year, the addition u/s 40A(2)(b) was deleted by the CIT(A) for similar facts. The Tribunal found that the interest rate of 18% paid to depositors was not excessive considering various justifications such as no need for security, loan period, and purpose of the loan. It was also observed that other persons not covered by section 40A(2)(b) were also paid interest at the rate of 18%. The Tribunal held that the addition of excessive interest u/s 40A(2)(b) was not justified and thus deleted the same, allowing the appeal of the assessee.

Therefore, the Tribunal allowed the appeal of the assessee, and the addition of excessive interest u/s 40A(2)(b) was deleted based on the findings and reasoning provided in the judgment.