Income tax return

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2012 Dear expert,
One of my client(partnership) is a civil contractor and both partners have invested 2 lacs each in cash as initial capital for bearing expences like registration with several departments and to deposit security amount before the contractee departments.
Please advise me, whether they can charge interest @ 12% on the amount of Rs. 4 lacs which invested in cash not by depositing in current a/c of firm.
Thanks.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

04 August 2012 Interest can be provided to the partners assuming that the relevant period is after executing the partnership deed.
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For deposits exceeding 20000/- special care must be taken for keeping in view the provisions of Section 269SS from the contractee's point of view.
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Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2012 suppose nsc of Rs. 50000/- purchased in cash for the purpose of depositing security before the contractee depsrtment. whether the said expenditure is eligible to calculate interest @12% or IT department will not allow it because it is incurred by the partners in cash .

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

04 August 2012 Technically, you have to compute the income of NSC also in the firm against the interest is being paid to the partners, but Firm does not get benefit U/s 80C which is rather larger than the interest @12%.
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It is better to show NSC in the Partner's names only as the firm is marginally benefited.
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Purchase of NSC is not an expenditure. It can be purchased in cash as the cash is being paid to the post office.
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One important thing- which is not related with the above issue-
Partner's can incur any business expenditure on behalf of the firm in cash , but the limits as prescribed U/s 40A(3) of Rs. 20000/- must be adhered to. Further they can bring money in cash and withdraw in cash.

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