Can interest paid in excess of 12% be disallowed ?

Abhijeet Mehendale (General manager) (109 Points)

28 January 2008  

Dear All

Can somebody tell me if the interest in excess of 12% be disallowed ? The case is as follows

One of our client has taken the loans in past three four years from the private parties at the rates higher than 12%. This was need based financing as the client was unable to get the loans from the bank. In such case he had no option but to borrow at whatever rate and repay the loans.He has borrowed at the rates of as high as 27% p.a.

Now the ITO has disallowed this claim saying that the interest is paid in excess of 12% which he assumes to be the bank rate. Now what should be my stand as the representative of client before the Income Tax Officers.

Abhijeet