02 August 2011
X PROPRIETARY CONCERN HAS GIVEN A LOAN TO Y PROPRIETARY CONCERN WHICH IS A SISTER CONCERN. BUT Y HAS CLOSED ITS BUSINESS AND THE LOAN IS NOT RECOVERABLE. WHETHER SUCH UNRECOVERABLE AMOUNT CAN BE TREATED AS BAD DEBTS OR NOT? [REFER CASE LAW : Jt. CIT vs. Rallies India Ltd. (2010) 3 ITR 1 (Mum.) (Trib.)]
03 August 2011
1.For claiming Bad Debts, the first requirement is existence of debt. Here Debt means debt arising in the normal course of business. 2. Unless X is not having the business of money lending as its main business activity, loans given can not be treated as debt. 3. In my view, X will not be allowed the claim for Bad Debts from his business income. IT IS A CAPITAL LOSS AND TO BE WRITTEN OFF AGAINST CAPITAL ACCOUNT.
03 August 2011
For writing off bad debts it should be a debt and it should be in due course of the business. If loan has been given to supply material or services to Y company then it can be treated as business debit.
Give the proper and full details for correct and to the point reply.
Anyhow I agree with the expert in case of general reply to your question
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