Allowability of provision

Save Share

This query is : Resolved

Sanjay (Querist)

09 November 2011 In Assessment year 1997-98, we had made a provision for doubtful Advances in the books of Accounts. The same had already added back in the total income for the same A.Y.

Now in current assessment year, we have to write back the said doubtful provision.

So my question is, whether the said expenditure is allowable as deduction u/s 36(1)(Vii) of the income tax act.

Please clarify the same.

Sanjay

Sanjay (Querist)

09 November 2011 Urgent pls.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

09 November 2011 Deduction U/s 36(1)(vii) is allowable in case of Bad Debts is written off.
Only on the basis of creating and writing off of provisions do not allow the assessee to claim the expenditure.

.
The most important thing about bad debt is
it should be a debt. An advance may not be a debt, when it is not covered under the normal business of the assessee.
.
Long Back in 1997-98, when you have created provision , then it was done by debiting the P&L A/c.
.
Now it can be reversed only by making a reverse entry in Credit of P&L.
.
As it is not a income, you can deduct it
from your Net Profit while computing the business income.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now