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Can a ito can make addition during scrutiny assessment proce

akanksha (CA Final Student) (325 Points)

07 January 2014

Can ITO make addition during the scrutiny assessment proceedings in case of All trade debtors or part thereof because of old debtors or debtors from whom recovery is impossible though the assessee is trying his best to recover the same. the amount is more than 50 Lakhs and debtors are around 30 lakhs

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11 Replies

Ankit (CA, CS) (3064 Points)
Replied 07 January 2014

Dear Akaksha,

Yes, he can make the addition to the income by disallowing the bad debts provisioning. There is no bar on him doing so.

However, you can argue for your case and try to explain to him that this is not correct and that you are making efforts to recover the same, but the same are not fruitful and thus, have written off the said debtors.

- Ankit

akanksha (CA Final Student) (325 Points)
Replied 07 January 2014

Sir,

We have not written any bad debts till date. however, as you told our debtors are old outstanding and out of business cycle. Please reply on these points.

Bhavin J. M. Dedhia (Chartered Accountant) (47 Points)
Replied 07 January 2014

If the amount of debtors written off as bad debt were earlier offered to income in earlier years then write off by the Assessee of the said debtors as bad debt will be allowable as deduction to the Assessee. The same is also held by the SC in the decision of TRF. Hence on above facts, AO cannot add back the debtors written off.

Regards

akanksha (CA Final Student) (325 Points)
Replied 07 January 2014

Bhavin Sir,

We have not written off any debtors in current years or earlier years but our A.O. is saying us that he will make addition due to old trade debtors

Bhavin J. M. Dedhia (Chartered Accountant) (47 Points)
Replied 07 January 2014

He cannot do that addition.

akanksha (CA Final Student) (325 Points)
Replied 07 January 2014

Thank you sir

CA sumit chejara (ca final) (99 Points)
Replied 07 January 2014

Dear Friend, U have to write off your debtor in the books of Accounts first.

CA KARAN MAINI (Practising CA) (106 Points)
Replied 07 January 2014

Sec. 36(1)vii bad debts are allowed as deduction if fully written off in the books of accounts of assessee . Only written off debtors in the books of accounts of assessee is sufficient for claiming deduction. No need to substantiate the non recovery from debtors before AO.I.e. external confirmation is not needed.

6ft Bullet (studet) (24 Points)
Replied 08 January 2014

PGBP U/S36 provision for doubtfull debtors NOT allowable as deduction i.e added back to ur income... Only Bad debts recorded in ur books of accounts ALLOWABLE as deduction. no external confirmation needed from bebtors for non recovery... whatever amount as bad debt u recorded in ur books of accouts allowable as deduction.... so u better to write bad debts in ur books of accounts...

Dr. Krishna Prabhakar (Others) (35 Points)
Replied 09 January 2014

No; I do not think that addition can be made on account of old debtors in the current A Y; per se. Moreover he has to prove that the transactions were false/bogus when they happened and the implications will be in the relevant assessmnet years. These kind of issues arise in case of bogus purchase/sales transactions and involve the matters of unaccounted investment; unaccounted expenses and estimated GP and mostly when the Department receives information consequent to a Search or Survey.