A proprietorship concern (TRADING FIRM) has taken mortgage loan 80 Lacs @ 12.75 % from a Pvt. Financing Company (RELIANCE)& out of 80 Lacs, Rs 50 Lacs being lend to other Proprietorship firm (MANUF. FIRM) in which his wife is prop.. The said amount is shown in books as "advance against purchase".
The said amount is actually used by other firm for purchasing P&M to enhance the prodn. capacity.
The amount of advance shown being reduced by showing sales & no interest being provided on it.
My Query regarding the matter is: 1. does showing Rs 50 Lacs as advance against purchase if proper? If not how it is to be shown?
2. does not providing any interest on 50 Lacs is proper? If not suggest the correct treatment.
3. does there any income tax implication in the matter?
4. does the loan taking firm need to deduct T.D.S on intt. being paid to the company from which loan taken. Since the lending Company is a PVT. FIN. COMPANY (RELIANCE)?
Please suggest & solve the query. Earliest reply is thankful.
03 January 2016
1) It is correct to show as such advance given by trading firm as "Advance against purchase" 2) Not providing for interest on 50 lacs is a proper as these money are advanced for business purpose i.e for purchase of goods. However during the scrutiny, Assessing officer may question regarding Interest expense on mortgage loan and may disallow the the interest on mortgage loan as the borrowed amount is lent interest free and that too to a related party. Hence it is advisable to charge interest on 50 lacs.
3) As i said above problem may arise during scrutiny. u/s 143(2) of the Income tax Act
4) Yes TDS on int u/s 194A has to be deducted @ 10% as t ia private finance company i.e NBFC which are not exempt from TDS
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