Wednesday, December 6, 2023

No disallowance u/s 40A(2)(b) on interest paid to related party without comparing it with FMV

 No disallowance u/s 40A(2)(b) on interest paid to related party without comparing it with FMV of rate of interest: ITAT

Genxt Mobile LLP vs. ACIT - [2023] 156 490 (Mumbai - Trib.)

The assessee, engaged in wholesale and distribution of mobile phones and accessories, faced scrutiny during assessment due to interest payments ranging from 9% to 18% on unsecured loans. Notably, interest at 18% was paid to a related party, invoking section 40A(2)(b) on an unsecured loan taken and repaid during the year.

The Assessing Officer (AO) cited section 40(b)(iv), limiting partner interest allowance to 12%, asserting that interest exceeding this rate to related parties falls under section 40A(2)(a). Consequently, interest payments beyond 12% were disallowed, resulting in additions to the assessee's income. The CIT(A) upheld this decision.

On appeal, the Mumbai Tribunal ruled that section 40A(2)(a) allows disallowance if payments to related parties are deemed excessive. The AO must first determine the fair market value (FMV) of the goods, services, or facilities. However, in this case, the AO considered the interest rate under section 40(b)(vi) as the FMV, neglecting a comparative assessment of the rate for the loan. The Tribunal concluded that the AO's partial disallowance lacked a basis, directing the deletion of the disallowed interest payment.

CBDT notifies ‘Godavari River Management Board’ for Sec. 10(46) exemption

Notification No. 102/2023, dated 05-12-2023

The Central Board of Direct Taxes (CBDT) has notified the 'Godavari River Management Board' under section 10(46) of the Income-tax Act, 1961. This applies to specified incomes, including grants/subsidies from the Central Government, grants/subsidies from Andhra Pradesh and Telangana State Governments, and interest from bank deposits, including savings accounts.

The exemption is subject to specified conditions and applies retrospectively for assessment years 2020-2021 to 2023-2024