Od facility ,accounting entries,any problems

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 August 2012 NT is soleproprietor of retail trader and wants to avail OD
facility from Bank with keeping FDs of father,mother,wife
and himself.In otherwords Bank gives OD on above deposits
and puts condition that interest on FDs will be adjusted to
OD of the above business.

I need clarification reg.problems to be faced on scrutiny
by IT authorities.

He wants to pass journal entry

1.Dr. Int.on OD & Cr Bank(as in loan statement)

2.Dr.Bank & Cr. Father,Mother etc a/c( with their int on FDs adjusted)

3. Dr.father,mother etc a/c & Cr.Cash / Bank a/c (with their int portion)

are the above entries correct ?

is he going to face any problem from IT deptt. Incase of scrutiny?

Kindly advise me. And Bank gives OD facility ON CONDITION
ABOVE MENTIONED.

Amol S Joglekar

Amol S Joglekar (Expert)
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08 August 2012 1.No entry at the time of sanctioning of OD limit by the bank. 2.As and when cheque is issued, Dr Payee Cr Bank OD. 3.As and when cheque is deposited Dr. Bank OD credit the giver of cheque. 4. Bank charges... Dr bank charges credit Bank OD. I donot understand why you want to mix up the collateral security with accounting? (Is the OD sanctioned in father/mother/ wife name or yours????)

Querist : Anonymous

Querist : Anonymous (Querist)

09 August 2012 Its a OD facility on deposits and facility is going to be sanctioned in name of NT the assessee but not in the name of father,mother etc. So Banks advance is more secured and int to be paid on deposits can be adjusted to o/s bal.of OD.

KINDLY advise if i follow method i mentioned ,is assessee going to face any problem from IT deptt. and whether entries to be passed are correct. thank you sir.

Amol S Joglekar

Amol S Joglekar (Expert)
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09 August 2012 if the OD facility is sanctioned in the name of client, what is the fear of having any problem. That I am not able to understand. At the most the FEAR could be, can IT dept issue notices to father, mother, wife etc. and catch under 'unexplained credit'... So far as you assessee is concerned, you can go ahead with the entries.

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