Treatment of writing off of an advance given.

Dear All,

I need an opinion on accounting as well as taxation effect of Writing off an Advance given (not for business purpose) and the opinion is needed from your end on URGENT basis.

Fact : There are two separate bodies under Ministry of Human Resource Development = AICTE and another one is BOPT (Board Of practical Training). Now the case is AICTE had launched a training course a long years ago for BOPT .It was decided that the necessary expenses related to continuing of such training like salary to Trainer & other incidental expenses would be borne by AICTE itself. But due to some reason (lack of fund, financial crunch etc) AICTE was unable to bear those expenses. After a discussion it was decided that as both AICTE & BOPT is under same Ministry , BOPT will give fund as an ADVANCE at initial stage say for example of Rs.10.00 Lakh to AICTE and at later stage AICTE will repay the amount to BOPT.

After providing such ADVANCE, BOPT was shown it under the heading " Loans & Advance ". Because BOPT is Non Profitable Training Institute and also give such advance NOT for business purpose.

But after long years AICTE is able to repay only Rs 2.00 Lakhs out of that Rs.10.00 lakhs of advance amount. Remaining Rs 8.00 lakhs is unpaid for long years, hence it is decided in Board Meeting that such Rs. 8.00 lakh (due amount) has to write off from the balance sheet.

Now my question is what will be the Accounting ( journal entry )and Taxation effect (allowability/ disallowbility) of this incident.

Whether the following entries can be done in books of accounts :

Loans write off/ waive off A/C ...........Dr.  8.00 lakhs (creating under Indirect Expenses and it   will                                                                       reduce from the c.year profit)

To, Loans & Advance A/C                             8.00 lakhs  (reduced from the asset side)