Write back of creditors

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 December 2015 One of our clients is writing back creditors outstanding for more than 5 years stating that there is no obligation to pay now. At the same time he is writing off Sundry debtors of equal amount stating that they are bad debts written off. As a result the net profit of the year is not effected.
Please clarify whether this practice is allowed and what would be the view of ITO in the assessment.
If the client transfers both the debtors and creditors to a separate account and shows nil balance what will be the effect. Is it a right practice?

Amol S Joglekar

Amol S Joglekar (Expert)

11 December 2015 The same is allowed so long as it is true and correct and not sham and fake.

No need to transfer it to any other account and net it off.

Querist : Anonymous

Querist : Anonymous (Querist)

11 December 2015 Sir, Can you please give any case law on this?

Amol S Joglekar

Amol S Joglekar (Expert)

15 December 2015 it is a very straight forward provision, having no ambiguity. So no case law is required.

Please tell me if you are stuck up some where so that i can search for.

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