Dear Sir, Can a Partner contribute his capital in the LLP by way of Cash. Can a Partner also contribute any amount over and above his obligation to contribute as capital in cash. I understand that any contribution over and above the capital obligation will be treated as loan by the partner to the LLP and such loan by virtue of section 269SS of the Income Tax Act cannot be accepted by the LLP in cash. Can we increase the capital obligation of the LLP and consider the additional amount received as capital instead of loan. Please advise on the same. Regards.

In ITO Vs Dayamayee Marble & Granite (ITAT kolkata) Appeal Number : ITA No. 162/Kol/2017 Dated 15/05/2018 it is held that where assessee received capital from the partner in cash, it did not tentamount to loan or deposit and therefore, penalty under section 271D was not to be levied for violation of section 269SS.

 LLP is an legal entity work as an artificial person. Partners mutually take LLP decisions. As per partners decision LLP can take loan from Partner. LLP operated business as per terms and conditions of LLP deed. Before taking Loan from partner firm need to ensure that there is no negative clause in LLP deed. As per LLP Act 2008 there is no restriction on to accept loan from Partner. Partner can decide to give loan to LLP on interest. Interest should be charged according to market loan rates. Interest paid to partner on Loan is expense for LLP.In CIT Vs M/s Muthoot Financiers (Delhi High Court) Appeal Number : ITA 336/2002 Dated 03/02/2015 it is held that Loan between firm and partners is out of ambit of Section 269SS.

However, it is advisable to accept the money through banking channels.