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TDS paid from own pocket

PRABHAKAR (SERVICE) (34 Points)

21 August 2009

our client, a corporate has paid lease rent to the contractor but not deducted TDS on it. However it has paid it from its pocket to I.T. Further it has written off the debit balance (TDS amt paid by it) as bad debts written off. My query:-

1) TDS paid to govt is on gross amount of bill, which is equaivalent to payment made to landlord, i.e. TDS paid on Rs. 2.00 Lacs which is the bill amount & also cheque amount.

2) bad debts written off is it a alllowable expenditure?

please forward your views on above.

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9 Replies

CA SHABIR (CA) (336 Points)
Replied 21 August 2009

Dear Prabhakar,

TDS amount paid by your client out of his own pocket and treating it as a bad debt is absolutely wrong treatment. There is a simple way as:

Debit : Expenditure

Credit : Party

Debit : Amt received by the payee + TDS PAID OUT OF POCKET

Credit-1. : Bank/Cash (Amount received by Party)

Credit-2.: TDS Payable

Debit. TDS Payable

Credit. Bank/Cash

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 22 August 2009

DO ENTRIES AS THIS:

1.LEASE RENT Dr. 200000

PARTY Cr. 200000

2. PARTY Dr. (200000+TDS)

BANK/CASH Cr. 200000

TDS PAYABLE Cr. (TDS)

3. TDS PAYABLE Dr. (TDS)

BANK/CASH Cr. (TDS)

NOW YOUR PARTY ACCOUNT WILL SHOW A DEBIT BALANCE AND THEN YOU CAN WRITE OFF THIS YEAR AS BAD DEBTS AND IT WILL BE ALLOWED.

REGARDS,

RITESH KOTHARI

deepesh ( Article) (28 Points)
Replied 18 January 2010

dear CA Shabirji & CA Riteshji

the accounting entry is perfect but i want to know that the TDS amount paidby the party is ALLOWABLE n if it is allowable then i want to say that if the TDs amount is allowed as bad debt, then the I.T. dept will object to the question that the concern is taking 30% tax advantage by making allowable expenses which is not the actual expenses but it is a liability of the conceern which is at fault.

for example....say TDS amount is 10000/-.

then the concern will pay less tax with respect to tds amount i.e. 3000/-.

plz reply, whether i m right or wrong. is there any case law.plz refer.

thankin u

deepesh

Rahul Gambre (Article Clerk) (25 Points)
Replied 18 January 2010

Dear Deepesh why are you considering that the TDS amt. is allowed as a bad debt written off. If u agree with those accounting entries u can see that the balance in TDS Payable A/c is nil. So, consider that the amt. of bad debts written off is the part of the principle amt.

Regards !!

CA Lovenish Bansal (JOB) (343 Points)
Replied 18 January 2010

TDS paid on the party behalf is not allowed as bad debts

Regd

Lovenish Bansal

Amit (Chartered Accountant B.Com(H)) (453 Points)
Replied 18 September 2010

Dear all please refer Supreme Court Judgment in case of Indian Aluminium Co Ltd. where in similar case it was held that company can not treat this as business expenditures under section 37(1), since the amount is paid for the default in deducting TDS under the Income Tax Act.

Further it can not be claimed as bad debts under section 36 as the condition of bad debts are not satisfied. As per Section 36(1)(Vii) The bad debts shall be allowed as deduction if the following conditions are satisfied-

1. The bad debts should have been written off as irrecoverable in the books of account of the assessee for the previous year in which deduction is claimed .

2. The debt should have been taken into account in computing the income of the previous year in which deduction is claimed or any earlier previous year.

2.The debt represents the money lend in the ordinary course of business of money lending or banking carried on by the assesee.

we can see that none of from the second condition has been satisfied by your company .

Thanks

1 Like

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 18 September 2010

HI ALL,

FIRST OF ALL, CALCULATE THE CORRECT TDS FIGURE BY THE FOLLOWING FORMULA :

= 200,000 X 100

(100-TDS RATE)

WHEN U R PAYING TDS OUT OF POCKET, IT PRESUMES THAT AMOUNT PAID IS NET OF TAX AND THUS, INCOME TAX DEPT. WOULD PRESUMES THAT AMOUNT PAID I.E RS.200,000 IS NET OF TAX AND NOT A GROSS AMOUNT. THUS, U CAN CALCULATE THE CORRECT TDS FIGURE BY USING ABOVEMENTIONED FORMULA.

SECONDLY, ASSESSEE CANNOT GET THE DEDUCTION OF ANY TYPE OF INCOME TAX OR FRINGE BENEFIT TAX. IT IS DISALLOWED UNDER SEC 37(1). TDS IS ACTUALLY ONE OF THE TYPE OF INCOME TAX AND HENCE NOT ALLOWABLE UNDER INCOME TAX ACT AS AN EXPENDITURE IN ANY WAY. THUS, EVEN IF U SHOW TDS PAID OUT OF POCKET AS AN DEBIT BALANCE IN BALANCE SHEET UNDER LOANS AND ADVANCES AND LATER ON WRITE IT OFF AS BAD DEBTS AS AN EXPENSE, IT IS JUST AS AN U R CLAIMING TDS PAID OUT IF POCKET AS AN EXPENSES IN INDIRECT WAY AND IS NOT ALLOWABLE UNDER SECTION 37(1). THUS, U CANNOT CLAIM EVEN BAD DEBTS WRITTEN OFF OF THE TDS PAID OUT OF POCKET.

REGARDS,

MANOJ

1 Like

JINESH SHAH (PRACTICING CA) (151 Points)
Replied 20 September 2010

IT CAN BE ALLOWED AS BAD DEBTS..

STILL IF THERE IS ANY CONTROVERSY, JUST TAKE RISK N WRITE OFF IT TO P & L IF AMOUNT IS INSIGNIFICANT. . IF CASE COMES INTO SCRUTINY THEN ONLY QUESTION OF DISALLOWANCE WILL RAISE..

1 Like

CA Lakhan Fatehchandani (Practicing Chartered Accountant) (85 Points)
Replied 03 March 2017

The Benefit Assessee will get of paying TDS from own pocket will be that he will get deduction of the Expense. He will be required to pay TDS in the method as specified by Manoj Gavali sir & also he will never get the benefit of writing off the amount as bad debts as explained by Amit sir. So he can write off amount in p&l but won't get deduction or if it would have been a proprietor he might write off the amount in capital account