Write off of loan given by a company

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B GANESH SHARMA (Querist)
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01 June 2012 ABC company has given an inter corporate deposit (ICD) to XYZ company for business purposes. Later the amount could not be refunded by XYZ company and hence the same was written off by ABC company. Now, is this loan amount, which is written off, taxable in the hands of XYZ company. If yes under what head and under what section of Income Tax Act. Does it make any difference if the ICD is taken for acquiring a capital asset.
Kindly clarify

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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01 June 2012 The write off of loan is NOT taxable. Section 41(1) deals with taxability of of such cases.

However, Section 41(1) applies to an expenditure or TRADING LIABILITY which was claimed as decution and is later on recovered or written off.

Deposit received from ABC is NOT a traidng liability in the books of XYZ. Accordingly, Section 41(1) is NOT attracted and there is no taxability.

B GANESH SHARMA

B GANESH SHARMA (Querist)
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01 June 2012 Thanks.

When the accounts of XYZ company are finalized the loan written off by the lender has to be taken to the credit of P&L account, which increases the book profits which will be subject to MAT. Am I right?

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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01 June 2012 Take it to capital reserve.

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