bad debts

This query is : Resolved

sohini agarwal (Querist)
Follow

08 July 2009 A person wrote bad debts in profit & loss account,which has been disallowed by the assessing officer. The action of assessing officer is legally correct? Give answer with coding case laws.

chetan soni

chetan soni (Expert)
Follow

08 July 2009 In case asseessee has failed to explained to AO that the reasonable efforts have been to taken to recover the debts but failed to recover so, then stand of AO is correct.

Now reasonable efforts means,

01 Send the letter of recovery to debtors,
02. reminder letter send
03. legal notice send, with lead time to reply.
04. any other reasonable efforts

After all this there is no recovery then badebts can be done.

Ratan Sharma

Ratan Sharma (Expert)
Follow

08 July 2009 Hi,
It is suffice if you write off the account of such defaulter in your books of accounts otherwise the deduction will not be allowed. If you have written off the account in your books of account then A.O. is legally bound to allow the deduction. The action of the AO in such case is illegal & will not stand in appeal.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
Follow

08 July 2009 The conditions to be satisfied for allowing bad debts are:
1) the debt must be incidental to the business.
2) such debt should be revenue in nature.
3) it must have been taken into account in computing the income of the assessee.
4) bad debt must have been written off in the books of the assessee.
5) the business in which such debt is incurred should be continued during the previous year.

taxindiaconnect

taxindiaconnect (Expert)
Follow

16 July 2009 The conditions as mentioned by BC are the conditions to make a debts actually bad. The bad debts once written off in the books of account. A debt may be bad but may not be written off in the books. If the bad debts has been written off, then the assessing officer is not required to travel beyond this fact that the assessee has written it off for the allowability of the bad debts. I Agree with Both with BC and Ratan. You can refer to Goodlas Narolac Paits Limited 188 ITR 1.

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