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Issues:
1. Disallowance of notional interest on interest-free advance 2. Disallowance of interest paid to persons covered under section 40A(2)(b) Analysis: 1. The appeal challenged the addition of notional interest on an interest-free advance made to an individual. The CIT(A) upheld the assessing officer's decision, but the Tribunal referred to a previous order where a similar disallowance was deleted. The Tribunal emphasized that no loans were made during the year, and past deductions were allowed based on the assumption that advances were not from borrowed funds. Consequently, the assessing officer was directed to delete the addition, ruling in favor of the assessee. 2. The second ground of disallowance involved interest paid to parties covered under section 40A(2)(b). The Tribunal found in favor of the assessee, referencing a previous order where a similar disallowance was deleted. It was noted that the interest rate paid was reasonable and not excessive compared to market rates. The Tribunal highlighted that the uniform rate of interest to all parties was not mandatory, as it depended on mutual agreements and prevailing market rates. Therefore, the assessing officer was directed to delete the disallowance, leading to the allowance of the appeal filed by the assessee. In conclusion, the Tribunal ruled in favor of the assessee on both grounds, directing the assessing officer to delete the additions related to notional interest on an interest-free advance and the disallowance of interest paid to parties under section 40A(2)(b). The decision was based on the consistency with previous orders and the reasoning that the interest rates were reasonable and not excessive.
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