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On the question of commercial prudence in any transaction of grant of ICDs/loans to related parties at a rate of interest lower than the rate at which the monies are borrowed the Kolkata bench in Subhakaran Sampatlall (HUF) v ITO (2020) 80ITR (Tri) (SN) 26 hinted on a need for investigation in such cases to inquire whether there is a material which establish that any amount of interest higher than the amount shown by the assessee in his account is received by the assessee. Given that the AO has neither doubted the genuineness of the borrowings as well as payment of interest on the deposit nor the giving loan to two companies and in-turn receiving interest the bench held in favour of the assessee.

To investigate the AO may demand access to financials/bank statements of the loanee to know from their bank an instance of further lending at a higher rate of interest. Only if he doubts the genuineness during investigation can he invoke a disallowance.

Commercial prudence would imply practical requirements/considerations, statutory and other restraints etc., drawing a clue from 202ITR434 (Cal).

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