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TMI Blog2023 (10) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of interest to any partner is allowed up to 12%, as the fair market value of the rate of interest. It is pertinent to note that it is not anybody's case that the interest has been paid by the assessee to its partner, rather it is the claim of the assessee that in order to meet the short-term finance, the assessee borrowed money on a short-term basis from SM Edible Pvt. Ltd. and repaid the loan taken during the year with interest @18%. Thus we are of the considered view that without finding the comparative fair market value of the rate of interest for the loan taken by the assessee, AO proceeded to make the part disallowance by drawing an analogy to the section which does not apply to the facts of the present case. As evident from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law the learned Commissioner (Appeals) is not justified in holding that the rate of Interest paid to related party is restricted to 12% without considering the prevailing market rate of Interest for Unsecured Loans and ascertaining the fair and reasonable rate of Interest paid by appellant. 3. On the facts and circumstances of the case and in law the learned Commissioner (Appeals) has erred in disallowing the Interest paid to the related concern without appreciating the fact that, there is no tax evasion for payment of Interest to the sister concern and is revenue neutral. 4. Your Appellant craves leave to add, alter, modify and submit any other grounds during the course of hearing without prejudice. 3. The only dispute raised by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... num, held that interest payment in excess of 12% to related parties, especially the sister concern, is squarely hit by the provisions of section 40A(2)(a) of the Act. Accordingly, in view of the specific provisions of section 40A(2)(a) of the Act, interest payment in excess of 12% was disallowed and a difference of Rs. 21,01,356 (i.e. Rs. 63,04,069 Rs. 42,02,713) was added to the total income of the assessee. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 5. We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that the assessee paid int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure as is considered excessive or unreasonable by the AO shall not be allowed as deduction. Thus, under the aforesaid section, the AO is required to first find out the fair market value of the goods, services, or facilities for which the payment was made. However, in the present case, it is evident that the AO considered the rate of interest as allowed under section 40(b)(iv) of the Act, wherein payment of interest to any partner is allowed up to 12%, as the fair market value of the rate of interest. It is pertinent to note that it is not anybody's case that the interest has been paid by the assessee to its partner, rather it is the claim of the assessee that in order to meet the short-term finance, the assessee borrowed money ..... X X X X Extracts X X X X X X X X Extracts X X X X
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