At, Income Tax Appellate Tribunal Chennai
By, THE HONOURABLE MR. N.R.S. GANESAN
By, JUDICIAL MEMBER & THE HONOURABLE MR. S. JAYARAMAN
By, ACCOUNTANT MEMBER
For the Appellant: N. Arjun Raj, CA, S. Sridhar, Advocate. For the Respondent: B. Sagadevan, JCIT.
N.R.S. Ganesan, Judicial Member:
1. This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -13, Chennai, dated 29.05.2018 and pertains to assessment year 2015-16.
2. The only issue arises for consideration is disallowance of interest paid by the assessee to the related parties.
3. Shri N. Arjun Raj, the Ld. representative for the assessee, submitted that during the year under consideration, the assessee borrowed unsecured loan from 38 persons and paid interest at the rate of 18% - 19.76%. Out of 38 persons, 3 persons were related to the assessee. In respect of those 3 persons, who are related to the assessee, according to the Ld. representative, the assessee paid interest at the rate of 18%. However, the Assessing Officer disallowed the claim of the assessee in respect of the three related parties, presumably under Section 40A(2) of the Income-tax Act, 1961 (in short 'the Act') on the ground that the market rate of interest was 12%. Since the interest paid to other 35 lenders was disallowed by the Assessing Officer and the rate of interest was also accepted by the Assessing Officer at the rate of 18% to 19.76%, according to the Ld. representative, there was no reason to disallow the interest paid by the assessee to the related parties at the rate of 18%.
4. On the contrary, Shri B. Sagadevan, the Ld. Departmental Representative, submitted that the payment of interest at the rate of 18% is very high when the market rate of interest was only 12%. Therefore, according to the Ld. D.R., the Assessing Officer has rightly disallowed the claim of the assessee towards interest payment, the difference between the actual interest paid and comparable market rate of interest. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
5. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claims that it borrowed unsecured loan from 38 persons, out of which, 3 persons are related to the assessee. The Assessing Officer as well as the CIT(Appeals) have not examined whether the assessee, in fact, borrowed unsecured loan from 38 parties. The facts are not brought on record either by the Assessing Officer or CIT(Appeals) with regard to unsecured loan borrowed by the assessee from other parties. Moreover, there is no material available on record with regard to market rate of interest. When the assessee claims unsecured loan was borrowed, the market rate for unsecured loan shall be taken as comparable rate for making disallowance.
6. Moreover, it is also to be ascertained whether out of 38 lenders, only 3 parties are related to the assessee. In the absence of any details with regard to lenders of loan, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter afresh and bring on record the details of the persons from whom unsecured loan was said to be borrowed by the assessee during the year under consideration and so-called related parties, how they are related to the assessee and the rate of interest paid to the related
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parties and also the market rate of interest for unsecured loan which prevailed at the relevant point of time. The Assessing Officer shall re-examine the matter and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 7. In the result, the appeal filed by the assessee is allowed for statistical purposes.