Allowable under INcome Tax Act or not

This query is : Resolved

CA Anesh Patil (Querist)
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07 May 2009 Accountant has debited the amt of Rs. 10lacs by w/o.it in P&L. It is advance money given to the Builders as earnest money. The contract is cancelled/not proceeded.The assertion of the accountant is that the amt. is not recoverable so it is w/o.The co. has no evidence or communication regarding the recovery of amount.

Q) Can co. w/o such amount in books???
Q) Is this amount allowable underIT act?? If not under which section??

chetan soni

chetan soni (Expert)
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07 May 2009 As a accounting part, the actual treatment should be considered that amount as deposit & w/o as recovered.

Now in your case you have dr. the same to profit & loss a/c, you can take the help of sec.37 to claim that amount as expenditure. After recovery cr. the same to profit & loss a/c, due to which revenue loss is not rectified. OR elso you can pass the rectification entry in the next year itself to give the effect to the same.

Before doing this treatment talk to your CA for the same.

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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07 May 2009 It is allowable under income tax act based on the agreement you have entered at the time of paying the advance. First instance you should pass it as advance and on the second instance when the amount becomes not claimable at that date you should write it off. If both the dates are falling under differnt accounting periods and in the period of paying the advance it will not be allowed as an expenditure. It is a general deduction to be covered under section 37 of the income tax act.

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