Accounting of partnership

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 September 2013 Sir I am working in a Partnership Firm at Hyderabad which is engaged in the field of Real Estate i.e, developing of layout and selling of plots.

Partnership Firm was registered in August 2012 and Office was opened in October 2012.
The business was commenced in December 2012 by way of a layout.

One of the Partners has introduced capital by way of cash at the beginning of the Firm say 1000000/- in a single transaction.

Now during the course of business one of the partner has introduced further amount of 1000000/- (through his friends )in the firm.
Now My query is how do I account for the above amount? Should it be accounted as further capital introduced by partners i.e., by Crediting to their Capital A/c.

If doing so in that way do the partners have to show the above amount in their individual returns ?

One more question can a partner introduce capital 'n' number of times during a financial year in the course of business or is there any restriction?

Now the second issue is the partners withdraw huge amounts say 300000/- to 500000/- by way of cash from the firm for paying amounts (bribes , liaison expenses,etc) to Govt. Officials for obtaining approvals for layouts from the Govt.

Now how do I account for the above transaction in the books of A/c ?

Can I straight away debit the above huge amounts to their Capital Accounts ?
If yes , does section 40 A (3) applies or not?

I am facing this problem frequently in spite of educating the partners of the difficulties in doing such transaction/s.

Please guide me in this regard.

CA Mohit Bansal

CA Mohit Bansal (Expert)
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12 September 2013 Dear,

1) A partner can introduce capital in the firm for any number of times, there is no such restriction on introduction of capital.

2)-Capital introduced by partner by taking money from friend can be shown as addition to capital and the same will be taxable as gift from friend u/s 56 of the Income Tax Act, 1961 in the individual return of partner. OR
-It can be shown as Loan from Mr. X(Friend) as a liability in balance sheet and the same can be paid over the time

3)The cash withdrawn by the partners for illegal activities should be reduced from the capital accounts of the partners. As this debit in the capital account has no Income Tax implication, section 40 A (3) doesn't come into play.

Querist : Anonymous

Querist : Anonymous (Querist)

12 September 2013 Thank You Mr. Mohit Bansal,C A for your clear cut reply. All my doubts have been cleared.