Sec 14a

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ADVOCATE NUSRAT (Querist)
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01 January 2016 IF A FIRM GIVES LOAN & ADVANCES TO ITS PARTNERS OR SISTER CONCERNS,FROM BORROWED CAPITAL CAN THE FIRM CLAIM ITS INTEREST AS EXPENCE UNDER SECTION 14A OF I.T.ACT

CA. Divyansh Agarwal

CA. Divyansh Agarwal (Expert)
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01 January 2016 Section 14A is not applicable in such case it applicable when exempt income is earn through deductible expenditure, you may give such interest to partners,sister concerns and borrowed capital but considering the provisions of payment to specified person u/s 40A(2)

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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01 January 2016 Interest on borrowed funds will be disallowed as a corollary to section 36 (1)(iii) of the Income tax Act,1961.

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ADVOCATE NUSRAT

ADVOCATE NUSRAT (Querist)
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02 January 2016 my question is if a firm give loan & advances from borrowed capital to its partners or sister concerns can firm claim its interest to banks as expence in p/l account?
and also can the firm can give interest on capital to partners?
AO said that the firm can give loan & advances to partners or sister concern but cant claim its interest as expence & accordingly disallowed the interest claimed in p/l account and also disallowed the interest given to partners on capital,
is AO correct?give me case laws on such situation

CA. Divyansh Agarwal

CA. Divyansh Agarwal (Expert)
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02 January 2016 If you are giving funds to partners and sister allied concern and also u are not receiving any interest thereon then interest shall be disallowed u/s36(i)(iiii). since funds are being diverted for which company is paying intetrest and claiming it in pl a/c. section 14A is of no role here since it applies only in case when exempt income is earn through investments made from borrowe funds. For interest to partners 12% interest is allowed provided partnership deed allows this. Hence in conclusion AO should disallwed the interest paid to bank to the extent of loan given,however interest on capital can not be disallowed as same is an allowable expenditure in section 40(b).

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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02 January 2016 1. The firm has incurred interest expenses for the funds borrowed from the bank and the amount so borrowed has been given as loans to the partners. The firm has to charge interest from the partners then only it is justified to claim the interest as Expense at one end and interest received on loans given to partners as Income on the other end. In the absence of any interest being received from the partners, the action of AO is justified.
2. In case Interest given to partners on their credit balances in their capital accounts is supported with the terms in the partnership deed as well as the rate of interest is 12% or less, it can be said that the action of the AO is unjustified and can be argued.

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ADVOCATE NUSRAT

ADVOCATE NUSRAT (Querist)
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02 January 2016 thanks CA PARAS BAFNA CAN U GIVE SOME CASE LAWS RELATED TO THAT

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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02 January 2016 1.For 36(1)(iii) disallowance - K.Somasundaram & Bros Vs. CIT (1999) 238 ITR 939 (Mad).

2. For 40 (b) disallowance - I have no case law.

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ADVOCATE NUSRAT

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05 January 2016 The firm has not charge interest from the partners ,can still the firm can claim interest paid on borrowed capital as expence,also give case laws.