Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

Bad Debts- manner of writing off

Income Tax - By: - CA DEV KUMAR KOTHARI - Dated:- 7-1-2017 Last Replied Date:- 8-1-2017 - Reference and links: Section 36 of Income-tax Act, 1961. TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT Sarangpur Cotton Manufacturing Co. Limited Versus Commissioner Of Income-Tax, Gujarat I 1982 (6) TMI 23 - GUJARAT High Court CIT Vs. General Insurance Corporation of India 2000 (9) TMI 13 - BOMBAY High Court CIT v. Union Carbide India Ltd. 1992 (1) TMI 345 - CALCUTTA HIGH COU .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

goes out of sight and even if position of debtor improves, it may not be recovered, unless the debtor himself come forward and pay the same (we find such honest debtors also). Or As a prudential method an account in name and style provision for bad debts can be maintained. In both methods the P & L account is debited and distributable profits are reduced by the amount of bad debts charged in accounts. There is always possibility that a debtor who is in difficult financial conditions may impr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f they become recoverable in future or are actually recovered in future. Likewise author also suggest to keep record of liabilities written back by unilateral action of enterprise so that in case in future claim is settled or paid or when enterprise is able to pay the same the same can be paid and accounted for properly with details about unilateral write-off in earlier years. Actually write off: In view of author in both situation that is (a) amount written off in account of debtor by crediting .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

off under both methods should be allowed. Ruling in case of TRF. LTD From paragraph 4 of the judgment of the Supreme Court we analyse as follows: After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the custo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in account of debtor as well as deduction from total debtors in balance sheet for provision of bad debts both represent bad debts written off. Even in case of assessee like individual, firm AOP, society practice of deducting total of bad debts, described as provision for bad debts is followed as per generally followed accounting policies. This is for the reason that even in case of assessee (other than companies) when business has grown, it is looked after by employees who can change due to att .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er than companies), if amount is written off and reflected as provision deducted from debtors, it should be considered as bad debt actually written off. There is no reason for making a difference for other assessee. Even in case of proprietor or partners, if the amount has been charged in P & L account as bad debt or as provision for bad debt, the distributable profits and capital both stand reduced due to such loss accounted for and written off in P & L account. From some earlier judgme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the profit and loss account and corresponding entries are posted in the Bad Debt Reserve Account. These entries coupled with deduction of ₹ 2,37,537 from advances in the balance-sheet of the assessee-company would be compliance with the condition with regard to writing off of the debt in question in its books of account for the relevant year of account. CIT v. Union Carbide India Ltd. 1992 (1) TMI 345 - CALCUTTA HIGH COURT referred in Commissioner Of Income-Tax Versus General Fibre Dea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed counsel for the assessee, Mr. Khaitan further submits that once the loan advance is debited in the profit and loss account and credited as provision for doubtful debts account, this court has allowed the claim of the assessee that it amounts to writing off the bad debts. He places reliance on the decision of this court in the case of CIT v. Union Carbide India Ltd. 1992 (1) TMI 345 - CALCUTTA HIGH COURT. Though the issue is covered by the decision of this court in the case of CIT v. Union Car .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eral Insurance Corporation of India 2000 (9) TMI 13 - BOMBAY High Court also similar view was taken. In CIT Vs. Hotel Ambassador 2001 (11) TMI 68 - KERALA High Court assessee written off balance in personal account of debtor but it was not debited in P & L account. In such situation it was held that requirement of write off was not complied with. That means a debit in P & L account is necessary in the year in which claim is made. View of author: In view of author and also as considered b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version