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TMI Blog2017 (1) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... f the considered view that the impugned disallowance u/s 40A(2)(b) in respect of interest paid in excess to 12% per annum deserves to be deleted. We, therefore, direct the Assessing Officer to delete the impugned disallowance. - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... o why the amount of interest paid in excess of 12% per annum not be disallowed u/s 40A(2)(b) of the Act. It was explained by the assessee that the interest paid is at the prevailing market rate, based on negotiation, and it cannot be equated with loans from banks and financial institutions, because the assessee has in such a case to give equatable market and collateral securities etc. in addition to complying with various documentation requirements. It was also explained by the assessee that the recipients of the interest are any way paying the tax at the maximum marginal rates and as such there is no tax avoidance motive in making excessive payments on account of interest. The explanations so given by the assessee were rejected. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The assessee is not satisfied and in further appeal before us. 6. At the time of hearing, none appeared on behalf of assessee, but we have heard the ld. DR, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. We find that the question as to whether 18% per annum interest rate can be said to be reasonable came up before the Coordinate Bench of this Tribunal in the case of ACIT vs. M/s. Navjivan Roller Flour & Pulse Mills P. Ltd (supra) and the Co-ordinate Bench inter alia held as follows:- "4. At the outset, from the side of the respondent-assessee an order of ITAT "A" Bench Ahmedabad in the case of Shri Ramesh Kantilal Sheth vs. ITO bearing ITA No.109/Ahd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of no use to come to the conclusion that he should not have paid interest on such a higher rate. 6. In the present case, there is doubt that the assessee was paying interest to outsiders @ 12%, but if it had to pay interest @ 18% to the Directors, it cannot be said that the assessee was paying higher interest to the Directors intentionally. The Revenue, in the present case, has not disputed the assessee's claim that the interest to Directors as well as the outsiders was being paid as per mutual consent and if that was the case, then in our opinion, the assessee had not committed any default which could clothe the Assessing Officer to invoke the provisions of section 40A(2)(b) of the Act. Consequently, we do not see any infirmity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there are Co-ordinate Bench decisions holding that 18% per annum interest is reasonable and it cannot hit the provisions of Section 40A(2)(b) of the Act, yet the CIT(A) declined to follow these decisions on the basis of judgments of Hon'ble Kerala High Court in the case of CIT vs. V.I. Baby & Co (supra) and Allahabad High Court in the case of CIT vs. H.R. Sugar Factory (P.) Ltd (supra). None of these High Courts' decisions, however, held anything to the contrary of what has been decided by the Co-ordinate Bench. The question as to whether 18% interest per annum is reasonable or not is an essential question of fact. Ld. CIT(A) has been superficial in his approach in disregarding the decisions of Coordinate Bench. 9. In any event, it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage raised any dispute. We may therefore, proceed on the basis that the element of excessive remuneration represents that income of the company which was eventually taxed in the hands of the Directors at the same rate at which; had it not been so distributed; would have been taxed in the hands of the company. In that view of the matter, the question of revenue neutrality would immediately arise. A certain income has already been taxed in the hands of the Directors. Permitting the Revenue to tax the same income again at the same rate in the hands of the principal payer would amount to double taxation. Only on this count, we answer question in favour of the appellant-assessee and against Revenue, allow the Appeal and set aside the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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