Interest @ 15% paid by assessee-HUF to its coparceners on loans advanced by them can’t be said to be excessive for the purpose of making addition u/s 40A(2)(b):

AO found that the assessee-HUF had paid interest @ 15% p.a. to its two Coparceners on loans advance by such coparceners to the assessee-HUF as against interest @ 12% p.a. to other parties. Hence, AO made an addition to the extent of differential interest @ 3% u/s 40A(2)(b) of the Act. Hon’ble ITAT was of the view that in light of the prevailing rate of interest during the relevant assessment year, 15% rate of interest was not found to be excessive. Further, the loans raised from such coparceners can be safely relied upon by the assessee-HUF since such coparceners may not demand the amount of loan back in the near future and the level of confidentiality was obviously more with respect to such coparceners. In light of the aforesaid facts, it was held that interest at the rate of 15% can’t be said to be excessive and the provisions of S.40A(2)(b) were wrongly invoked. Hence, the said addition was deleted.

[SHRI HITESH NARENDRABHAI SHAH (HUF) Vs. ITO – ITA No.2370/Ahd/2010]