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Disallow of interest to partners on part of loss c/f

Tax queries 236 views 1 replies

Anil

24 Points Posted on 07 February 2016

My partnership firm distributed loss Rs. 10 Lac in partners in previous year. In next year, we re-introduced the loss of Rs. 10 Lacs last year in profit and loss account through debited to partner's capital account on 01st of april of month. We claimed interest on loss of Rs. 10 lac but ITO want to disallow the interest to partners on capital against Rs. 10 lac loss. There is no changing in partnership status or partners.

Am I right or is ITO right. Please give reply with relevant case law or any supporting reference.

Replies (1)

Ruchi

1410 Points Posted on 08 February 2016

I think ITO 's view is right. If separate accounts for Current and Capital accounts is kept then interest is charged on Capital account balance and question of whether interest is payable on profit or loss doest arise. And if only single Capital account is maintained then all the debits and credits of previous year should be given effect and then only interest of current year can be calculated.