Disputed income
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
29 May 2013
A company "X" has taken loan from company "A" and provided the same at higher interest to company "B". The situation was like this that X received interest from B and paid to A and on the net interest amount, paid tax.
Now for FY 2012-13, company B made provision of interest payable to X and after provision of TDS filed the TDS return. After some dispute, B is not paying interest to X and now it seems that the loan given would be a bad debt. In such a case, on part of X, actual cash/cheque received for 2012-13 is NIL but it has to pay tax on interest provided by B in the TDS return as the interest and TDS are appearing in Form 26AS.
Is there any provision, law or case law on the basis of which X does not book the income for 2012-13 (as it is not going to be received anyway), and does not claims the TDS amount also? Please help, its urgent.
Now for FY 2012-13, company B made provision of interest payable to X and after provision of TDS filed the TDS return. After some dispute, B is not paying interest to X and now it seems that the loan given would be a bad debt. In such a case, on part of X, actual cash/cheque received for 2012-13 is NIL but it has to pay tax on interest provided by B in the TDS return as the interest and TDS are appearing in Form 26AS.
Is there any provision, law or case law on the basis of which X does not book the income for 2012-13 (as it is not going to be received anyway), and does not claims the TDS amount also? Please help, its urgent.
21 July 2024
In the scenario described, where Company X has provided a loan to Company B and received interest income from B, but due to a dispute, B has not paid the interest, resulting in a potential bad debt situation, here are the key points to consider:
1. **Recognition of Income:**
- Income is typically recognized on an accrual basis in accordance with the accounting standards. This means that Company X would have recognized interest income from Company B when it became due, regardless of whether the cash was received.
- As per accrual accounting, if Company X has accrued interest income based on its agreement with Company B, it should have recorded this income in its books for the FY 2012-13.
2. **TDS (Tax Deducted at Source):**
- Company B would have deducted TDS on the interest paid or payable to Company X, and this TDS should reflect in Company X's Form 26AS.
- Form 26AS is a statement that reflects all tax-related information, including TDS deducted by others on payments made to the taxpayer (Company X in this case).
3. **Treatment of Bad Debt:**
- If Company X now believes that the interest income from Company B has become irrecoverable and qualifies as a bad debt, it can claim a deduction for the bad debt under the provisions of the Income Tax Act, 1961.
- Section 36(1)(vii) of the Income Tax Act allows a deduction for any bad debt written off as irrecoverable in the books of accounts of the assessee.
4. **Tax Implications:**
- Since the TDS has already been deducted and reflected in Form 26AS, Company X would have already paid tax on this income, albeit the cash was not received.
- To avoid double taxation (paying tax on income that is not received), Company X can claim a deduction for the bad debt in the subsequent year when it writes off the debt as irrecoverable.
5. **Provisions and Case Law:**
- There are provisions in the Income Tax Act that allow for deduction of bad debts, ensuring that taxpayers are not taxed on income that ultimately proves to be unrecoverable.
- Case law supports the principle that tax should be levied on income that is actually received or receivable, and not on amounts that are ultimately determined to be bad debts.
**Conclusion:**
In summary, while Company X cannot avoid recognizing the interest income in its books for FY 2012-13 if it has accrued the income, it can claim a deduction for the bad debt in subsequent years when it becomes irrecoverable. This will adjust the taxable income appropriately, considering the TDS already deducted and paid.
It's advisable for Company X to consult with a qualified tax advisor or chartered accountant who can provide guidance specific to its circumstances and ensure compliance with the Income Tax Act and accounting standards.
1. **Recognition of Income:**
- Income is typically recognized on an accrual basis in accordance with the accounting standards. This means that Company X would have recognized interest income from Company B when it became due, regardless of whether the cash was received.
- As per accrual accounting, if Company X has accrued interest income based on its agreement with Company B, it should have recorded this income in its books for the FY 2012-13.
2. **TDS (Tax Deducted at Source):**
- Company B would have deducted TDS on the interest paid or payable to Company X, and this TDS should reflect in Company X's Form 26AS.
- Form 26AS is a statement that reflects all tax-related information, including TDS deducted by others on payments made to the taxpayer (Company X in this case).
3. **Treatment of Bad Debt:**
- If Company X now believes that the interest income from Company B has become irrecoverable and qualifies as a bad debt, it can claim a deduction for the bad debt under the provisions of the Income Tax Act, 1961.
- Section 36(1)(vii) of the Income Tax Act allows a deduction for any bad debt written off as irrecoverable in the books of accounts of the assessee.
4. **Tax Implications:**
- Since the TDS has already been deducted and reflected in Form 26AS, Company X would have already paid tax on this income, albeit the cash was not received.
- To avoid double taxation (paying tax on income that is not received), Company X can claim a deduction for the bad debt in the subsequent year when it writes off the debt as irrecoverable.
5. **Provisions and Case Law:**
- There are provisions in the Income Tax Act that allow for deduction of bad debts, ensuring that taxpayers are not taxed on income that ultimately proves to be unrecoverable.
- Case law supports the principle that tax should be levied on income that is actually received or receivable, and not on amounts that are ultimately determined to be bad debts.
**Conclusion:**
In summary, while Company X cannot avoid recognizing the interest income in its books for FY 2012-13 if it has accrued the income, it can claim a deduction for the bad debt in subsequent years when it becomes irrecoverable. This will adjust the taxable income appropriately, considering the TDS already deducted and paid.
It's advisable for Company X to consult with a qualified tax advisor or chartered accountant who can provide guidance specific to its circumstances and ensure compliance with the Income Tax Act and accounting standards.
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