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Deduction of bad debts under pgbp

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AJAY

.....

23 Points Posted on 04 April 2021

If assessee has bad debts of 800000 but A.O. allowed only 400000 for deduction and in next year if assessee recovered 100000 of bad debts then what will be treatment of this?

Replies (4)

Quick Summary

This discussion clarifies the tax treatment of bad debts under the PGbp head, specifically when an Assessing Officer (AO) allows only a partial deduction. It explains that if a portion of the bad debt was disallowed by the AO and subsequently recovered, it is generally not taxable as income. The recovery is considered a return of an amount already taxed on a due basis. The advice also touches upon how to handle recoveries exceeding the original debtor balance.

CA. Sourav Sarkar

Chartered Accountant

16188 Points Posted on 04 April 2021

100000 rupees shall be deducted from the total amount of debt

AJAY

.....

23 Points Posted on 04 April 2021

My query is AO allowed only 400000 as deduction so remaining 400000 will be taxable as income but in subsequent year 100000 recovered out of total debt then it will be taxable as income or not? and how we will decide that whether is assumed to be part of 400000 which was allowed as deduction by AO or it is the part of 400000 which is already taxable because AO disallowed.

Ankit Neema

1359 Points Posted on 04 April 2021

Income cannot be taxed double.
so 100000, recovered is not taxable as assessing officer already taxed that 100000.

But can you how why AO disallowed 400000 bad debts?

singarsri

26 Points Posted on 05 April 2021

Not taxable as it is just recovery of outstanding which was already taxed in due basis (included in credit sales)

Example:
Debtors balance Rs. 8 lakhs (in B/S)
Less: Bad debt allowed u/s 36 Rs. 4 lakhs.
Balance Debtors after deduction allowed Rs. 4 lakhs.

On recovery of Rs. 1 lakh out of the balance debtor is not taxable.

Debtor balance after recovery still Rs. 3 lakhs can be claimed for bad debt u/s 36(1)(vii)

Note:If you recover Rs. 5 lakhs instaed of 1 lakh, then Rs. 4 lakhs is just recovery of balance debtor and Rs. 1 in excess than the debtor balance is taxable u/s 41(4).