Interest, tds & disclosure

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

10 March 2012 Dear Experts

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
what is the correct presentation?

NOTE:
Out of Rs 50 Lacs, 18 Lacs being spent for installation of P&M.

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.

Hitender Gaur

Hitender Gaur (Expert)
Follow

10 March 2012 1. Any one can give advance to any one against the purchases. Bur for safe side revers the entry on of before 31 st March and on or after 1st april again show the advance.
For 18 Lacs you can show purchases from Manufacturing firm (if Possible) Note: TO of both firm is also a factor for proper or improper.

2. There is no need to allow any interest, it the matter of both firms. Please Note that Any Loan/Advance or Investment of Manufacturing Unit in Trading firm also not allow/charging any interest during the same period.

3. Depends on overall profit/loss of Trading firm.

4.TDS will be applicable (check whether they have Certificate u/s. 197 or not)

Querist : Anonymous

Querist : Anonymous (Querist)

10 March 2012 Dear Hitender Guar

Please note that you have considered the matter reverse. The loan is given by the trading firm to manuf. firm.

Also note that i my view since the interest is being paid by the trading firm to reliance, is it correct to give it the same amount to other at interest free???

I think the A.O will make the addition of interest to the trading firm.

Pls resolve

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