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Loan given by a proprietorship firm to related party

Neha Bhattar (none) (170 Points)

05 September 2013

Plzzz reply soon.....

if a loan has been given by a sole proprietorship concern to another proprietorship concern which is related, do we have to disclose this in form 3cd for tax audit???

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15 Replies

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 05 September 2013

Dear Neha,

The same would be required to be disclosed in Form 3CD provided the amount of loan exceeds the limit prescribed u/s 269SS, 269T.... i.e. 20000 or above.. if it is below that limit, though they are related parties, for e.g. 10000 loan, then there is no need for such disclosure in tax audit report.

Best Regards,
CA Lovely Arora
ca.lovelyarora @ gmail.com

Neha Bhattar (none) (170 Points)
Replied 05 September 2013

clause 24 of form 3cd deals with the loan taken or loan repaid.

if a firm A gives loan to firm B, does A(who has given loan) needs to disclose this in his tax audit.

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 05 September 2013

Dear Neha,

if it exceeds the prescribed amount under sec. 269SS, then firm B needs to disclose it in its tax audit report, as the wordings of clause 24(a) says:- taken or accepted... and firm B took that loan...

Neha Bhattar (none) (170 Points)
Replied 05 September 2013

Dear, I am not asking for firm B....

if anything needs to be done in Firm A's report... i need to know that.

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 05 September 2013

For Firm A, no disclosure in audit report required....

1 Like

Neha Bhattar (none) (170 Points)
Replied 05 September 2013

sure?????

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 05 September 2013

yup... very much sure...

CA Bada Sanjay Kumar Reddy (CA) (69 Points)
Replied 07 September 2013

Mr. Lovely Arora

As per clause No. 18 of 3 CD speaks as follows

Particulars of payments made to persons specified under section 40A(2)(b).

It is not withstanding the provision contained in 40 (A) (2) it says the payments made during the year to the persons said/covered to be relative as per 40 (A) (2) to be reported. It even covers balance sheet transactions as well as Transaction through Profit and loss a/c irrespective of excessive and unreasonability .

Hope the above solves your purpose

CA Bada Sanjay Kumar Reddy (CA) (69 Points)
Replied 07 September 2013

Dear Neha and Arora,

The word used in section 269 SS and T is whether the loan taken or accepted. For your information it does not cover repayment. From the above conversation I feel from the view point of Firm, It has neither taken nor accepted but it is given. So it is not required for the year in which the loan is given.

But subsequent to that there may be repayment of the same loan by Firm B then it may become an acceptance for Firm A. Then you may ask whether such transaction in the year of repayment attracts 269 SS and T, whether such disclosure is required in the books of Firm A. Just think and get back to me. I will suggest even on that issue.

CA Bada Sanjay Kumar Reddy (CA) (69 Points)
Replied 07 September 2013

Dear arora i am not interpreting the section 40A (2). Read my mail very carefully. I am interpreting clause 18 of 3CD read with section 40A (2).

CA Bada Sanjay Kumar Reddy (CA) (69 Points)
Replied 07 September 2013

Never jump to a straight conclusion. it is very clearlu mentioned

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 07 September 2013

sirji, that clause 18 is referring to sec. 40A(2) only....

and that clause says, "Particulars of payments made to persons specified under section 40A(2)(b)" where is confusion, i couldn't understand.... sec. 40A(2) gives birth to clause 18 and clause 18 refers to sec. 40A(2).. then, where's the difference....?

Requesting you to kindly substantiate your point. Sirji, in guidance note and also section wordings of IT Act and also clause 18 wordings of tax audit report.... there is nothing to refer to payments other than expenditures....

Requesting again.. to kindly give some link/file etc... so that we could get clear interpretation....

Thanks in advance..

CA Bada Sanjay Kumar Reddy (CA) (69 Points)
Replied 07 September 2013

Dear Aurora I agree u w.r.t section 40(A)(2) provision. it covers only exp. passed thru p&l a/c. But 3CD is a not even a report it is just a statement of true particulars of the listed clauses in 3CD. So, when it is said payment particulars for the persons covered u/s 40 A 2. The intention beyond that clause would be all payments.

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 07 September 2013

Dear Sir,

sorry for asking again and again... but relying upon the intention of the IT Dept. whether any practicing CA would be happy if he needs to enlarge his/her scope to that extent.... sirji, in my view Rs. 20000 is not very high amount, and if in one's audit, CA do all such verification e.g. payment to relatives and that payment is in terms of loan reimbursement also, not loan redemption only....
and also, why did you deny at your 2nd comment on this post while replying to Ms. Neha's query that "sec. 269SS covers only loan taken or accepted, it doesn't cover the cases when loan is given....etc...." those were your wordings only... if relying upon that clause 18 covers all payments, then that payment of loan MUST ALSO BE covered... not in clause 24 but in 18... kindly say, if i am wrong.... and then all cases of payment e.g. loan given, making petty cash payment, for other purposes etc.... will be covered... and the concerned CA will get burdened with too much work... for which NO TOO-MUCH BENEFIT is foreseen...

Requesting you to kindly substantiate (any point, any link etc... you could give). Thanks in advance.. and should i share Guidance note on tax audit? I think you must have that copy, thus, didn't share it till now...

Thanks in advance..

CA Lovely Arora
ca.lovelyarora @ gmail.com