05 December 2011
My dear friend A.O. can not add the unrealised interest to your income however he can disallowed the interest paid on loans taken. Suppose you have given interest free advances of Rs. 50 lacs. You have not paid interest on your unsecured loans. In such condition nothing can be disallowed or alternatively nothing can be added to your total income. A.O. can make the addition at the percentage at which you are giving interest to your loans. Suppose you are paying interest @ 12% then he can disallow the interest @ 12% only. However remember the A.O. can disallowed the interest only if you have given the advances for non business purpose only & interest free loan is given in the current year. It depends on case to case basis.
CAclubindia
