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TMI Blog2012 (8) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and issue being same in all the assessment years except difference in the figures for addition, these appeals same are being disposed off by this common order for the sake of convenience. 2. Grounds No.2 and 3 raised by the assessee in all the appeals are general in nature and requires no adjudication. The lone common ground No.1 of the appeals surviving for adjudication reads as under: The learned C. I. T. (Appeals) has erred in confirming the disallowance u/s. 40A (2) (b) of the Income Tax Act of ₹ 52,788/- in AY 2001-02, ₹ 77,470/- in AY 2002-03 and ₹ 81,476/- in AY 2003-04 on the ground that interest paid to the depositors at 18% are excessive and unreasonable compared to the market rate. The learned C.I. T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid a sum of ₹ 5,25,734/- to the persons covered u/s 40A (2) (b) of the Act under the head payment of interest and salary. During the course of the assessment proceedings the learned AO required the assessee to furnish details of the interest payments to persons referred to u/s 40A (2) (a) of the Act. The assessee submitted the details of such payments for 12 persons stating that the same are at comparative prevailing market rate, however, could not substantiate the same with any cogent materials. The learned AO noted that the rate of interest in the financial market at the relevant time was 12% and disallowed a sum of ₹ 1,05,576/- u/s 40A (2) (a) of the Act and added the same to the income of the assessee. 4. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate is much higher and goes to 18% to21%. Thus, the interest rate is considered by the Assessing Officer cannot be said to be the fair market rate of interest. The fair market rate of interest will be the rate of interest on which the funds can be arranged in the market. As per the version of Shroffs, though cannot be accepted as authentic, the rate of interest in the market in Dahod area is ranging from 12% to 18%. In the case of M/s. Nutan Pulse Mills, a concern deals in pulses at Dahod like the appellant, I have held the fair market rate of 15% as reasonable. The appellant cannot derive support from the case laws relied upon because those are relating to assessment years of nineties when the rate of interest even of banks was very high. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee is covered by the recent decision of ITAT Ahmedabad A Bench in the case of Krishna Terene Pvt. Ltd. supra and prayed that the disallowance confirmed by the learned CIT(A) may be deleted. On the other hand, the learned DR supported the order of the learned CIT(A) and prayed that his order may be upheld. 5. We have heard the rival submissions, carefully perused the orders of the revenue and gone through the paper book submitted by the learned AR along with the certificate of Financial Broker, Fakhari Jabirbhai Jambughodawala of Dahod dated 14-09-2009 wherein prevailing market rate of interest on deposits during F. Y. 2000-01 to 2004-05 has been confirmed to be 12% to 18 and during F. Y. 2005- 06 and 2006-07 the same has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There are other factors also justifying higher rate of interest paid to the creditors as compared to the rate of interest paid to the bank, such as no need of offering security or pledging the movable or immovable asset, the period for which the loan was required and the purpose of the loan, etc. There is no material brought on record on behalf of the Revenue to suggest that the assessee has paid a lower rate of interest to outside parties as compared to the depositors covered u/s 40A(2)(b) of the Act. In these facts of the case, we hold that the addition / disallowance made u/s 40A (2)(b) on account of excessive interest is not justified and is deleted accordingly and the ground of appeal No.1 is allowed. 5.1 In view of the above dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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