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TMI Blog2017 (1) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... atives is excessive or unreasonable. The CIT(A) without appreciating the facts simply, followed adhoc rate of interest of 15% to restrict the disallowance made by the A.O. towards interest payments to related parties. Therefore, we are of the view that the A.O. was erred in disallowing interest payments to related parties over and above 13.2%. - Decided in favour of assessee. - I.T.A.No.13/Vizag/2015 - - - Dated:- 30-12-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri V. Shiva Kumar, AR For The Respondent : Shri T. Satyanandam, DR ORDER PER G. MANJUNATHA, Accountant Member: This appeal filed by the assessee is directed against order of the CIT(A), Vijay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying the provisions of section 40A(2)(b) of the Act for disallowing interest over and above 13.2%. The CIT(A) after considering the submissions of the assessee, held that out of the total 37 members in respect of whom disallowance u/s 40A(2)(b) of the Act was made, only 9 members are related to the assessee and hence provisions of section 40A(2)(b) of the Act are not applicable in case of interest paid to non-relatives, accordingly, directed the A.O. to delete additions made towards interest payment to non-relatives. In so far as interest payment to relatives is concerned, the CIT(A) by following his predecessor CIT(A) order in assessee s own case for the assessment year 2008-09, directed the A.O. to restrict disallowance to the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. It is the contention of the assessee that he had paid common rate of interest to related parties as well as non-related parties. The assessee further contended that the provisions of section 40A(2)(b) of the Act, mandates disallowance of payments made to persons referred to in that section, if the A.O. is of the opinion that expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities or the legitimate needs of the business of the assessee or benefit derived or agreed to the assessee. It is further submitted that having regard to the fair market value indicates that a comparable instance needs to be looked into and if the expenditure is made in excess of the values prevailing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket during such period. Since, the rate of interest paid to related parties is on par with the rate of interest paid to non-related parties, the A.O. was erred in applying the provisions of section 40A(2)(b) of the Act, to hold that interest payment made to relatives is excessive or unreasonable. The CIT(A) without appreciating the facts simply, followed adhoc rate of interest of 15% to restrict the disallowance made by the A.O. towards interest payments to related parties. Therefore, we are of the view that the A.O. was erred in disallowing interest payments to related parties over and above 13.2%. 8. The assessee has relied upon the decision of Hon ble High Court of Gujarat, in the case of Principal CIT-1 Vs. Cama Hotels Ltd. (2016) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red loans. Thus, by availing of li from associate concerns, it had avoided a lot of formalities. The Tribunal was of the opinion that the payment of interest at a little higher rate to the persons ev covered under section 40A(2)(b) cannot be termed as exorbitant when the fair market value of interest cost is being considered. The Tribunal found, as a matter of fact, that the assessee had interest commensurate with the interest rate prevailing in the open market. In the light of the at findings of fact recorded by it, the Tribunal found that the assessee had not extended any undue benefit the persons covered under section 40A(2)(b) and rejected the said ground of appeal. [Para 5] Thus, the Tribunal has recorded a finding of f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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