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?
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.
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).
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