Interest on Unsecured Loan- Proprietorship

This query is : Resolved

CA Sanjay Baheti (Querist)
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09 August 2010 My Assessee has paid intt. @ 18p.a. on unsecured loan. can A.o. restrict the same to 15 p.a. Please provide reference to case law also, if available, to defend the assessee.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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09 August 2010 It should be accordingly to the prevailing market rates. If the same is followed then allowable otherwise not.

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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09 August 2010 Agreed with Aditya.

But if the assessee can prove the following then he can fight the case in appeal and will easily win :

1. When the Business is new.

2. The assessee is not having good reputation in the market ( business is small).

3. There was an immediate need of the funds.

4. The assessee was not in a position to bargain with rate of interest.

5. The funds were acquired for short period (if situations are alike this).

6. There were immediate/likely rise in the prices of the raw materials/shortage of raw materials hence assessee wanted to make a good inventory to get benefit of the positive market scenario.

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