section 14A

[satbir singhwahi]

proprietorship firm has 900 lac capital and has invested in partnership firms 450 lacs and has raised unsecured loans of 200 lacs. The interest paid on unsecured loans is claimed as expenditure against trading profit on sale/purchase of land.The investment in partnership firms of 450 lacs , the profit share is claimed as exempt. The A.O. is insisting to disallow interest on unsecured loans u/s 14A.Is he correct when sufficient capital is there.

AI Summary

Dispute Over Interest Deduction on Loans for Investments in Partnership Firms Under Section 14A: Differing Opinions Arise A proprietorship firm with a capital of 900 lacs has invested 450 lacs in partnership firms and raised unsecured loans of 200 lacs, claiming interest on these loans as an expenditure against trading profit. The Assessing Officer (AO) seeks to disallow this interest under Section 14A, arguing it relates to exempt income. One respondent agrees with the AO, citing case laws supporting disallowance. Another argues that if investments are from capital, interest should not be disallowed, as the share in profit is exempt due to the firm's tax payment. A third respondent contends that Section 14A applies if borrowed funds are used for investments.