INTEREST RECOVERABLE EXCEEDING THE LOAN AMOUNT

[S.C. WADHWA]

A Pvt Ltd. gave loan to another Company around eight years back.

The rate of interest claimed is around 13% Such another company deducted TDS every year on interest payable

In books of Pvt. Ltd. Company, the amount of interest recoverable has exceeded the amount of original loan as the another company has not made any payment since the date of receiving loan neither towards principal nor towards interest.

Please advise whether it would cause any problem for Pvt. Ltd. Company giving the loan

[CASusheel Gupta]

Dear Mr. Wadhwa

Problem can be for the person taking the loan. Since the loan is outstanding for eight years and even interest remains outstanding, the AO tends to add these transactions as time barring after three years/bogus entries. Should not be a problem for company giving the loan.

CA Susheel Gupta

9811004443

AI Summary

Interest accrual exceeding principal may trigger assessment as bogus or time-barred entries, risking tax consequences for borrower. A company advanced a loan eight years ago with interest accruing but unpaid, and annual TDS deducted by the borrower; the assessing officer may treat prolonged unpaid interest exceeding principal as time-barred or bogus entries, creating tax scrutiny and consequences primarily for the borrower rather than the lender.