2011 (2) TMI 1602

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..... PER R. C. SHARMA, A.M. This is an appeal filed by the assessee against the order of CIT(A) dated 16.9.2009 for the assessment year 2006-07 in the matter of order passed u/s 143(3) of the Income-tax Act, 1961. 2. The only grievance of the assessee relates to disallowance of interest by invoking the provisions of Section 40A(2)(b) of the Income-tax Act, 1961. 3. Rival contentions have been heard .....

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..... ntions and found that the assessee was engaged in manufacturing of Dal. During the year, it has achieved production and sale target of ₹ 17 crores out of his own capital of ₹ 12 lakhs and bank loan of ₹ 60 lakhs. In terms of its requirement of working capital of ₹ 250 lakhs, since the Bank has only sanctioned ₹ 60 lakhs, the assessee has arranged rest of the funds by .....

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..... amp duty expenses for carrying on process of documentation and stamp duty expenses for mortgage and hypothecation works out at 1 %. Further finance consultant's fee and administrative expenses for sanction of loan works out to be earning 1.5 %. Thus, the effective rate of interest from Bank is calculated at 18.35 %. Merely because basic rate of bank interest was 13.25%, the hidden/indirect cost fo .....

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..... A(2) to the extent of 18 % only. We also found that the assessee has also availed loan from National Agriculture Coop. Marketing Federation, which is a Government of India Enterprise @ 18%, which has been duly noted by the ld. CIT(A). Accordingly, there is no justification or reasonableness for reaching to the conclusion that interest paid by the assessee to relatives and friends @ 18% is excessiv .....

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..... hat interest paid by the assessee to friends and relatives were excessive or unreasonable. 6. In view of above discussion, we do not find any merit in the action of ld. CIT(A) for restricting rate of interest at 15 % as against 18 % actually paid by the assessee. 7. In the result, the appeal of the assessee is allowed. This order has been pronounced in the open court on 8th February, 2011.
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