Tax treatment & accounting treatment

This query is : Resolved

Armman (Querist)
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09 August 2011 Suppose if ABC Ltd has taken loan from Bank of Rs 10 Lake of which 7 lakes has repaid along with interest. Due to Some dispute between ABC Ltd and Bank, ABC Ltd refused to repay balance amount. Hence Bank has filed case against ABC Ltd for non repayment of debt in which court judgement come in favour of ABC Ltd.
Now Books of Accounts of ABC Ltd shows debt of Rs 3 Lake (i.e. 10-7)
So what is the Accounting treatment of above transaction?
And what is the tax treatment?
Whether ABC Ltd has to pay tax on 3 lake?

CA. Nishant Khatana

CA. Nishant Khatana (Expert)
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09 August 2011 The balance portion of loan i.e. Rs.3 Lakhs will be shown as extraordinary income in the P&L below the line. Any written back debt is the income of the organisation. The Income tax is also payable on such abnormal incomes after allowing a deduction of litigation expenses if not claimed already as revenue expenditure for Income tax purposes.

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CA. Anoop Gadia

CA. Anoop Gadia (Expert)
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10 August 2011 yes, that approach right but alternative may be taken: capitalised the 3 lac because it is capital receipt due to court order in force.

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CA Manish Agrawal

CA Manish Agrawal (Expert)
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10 August 2011 You have to see the Purpose of Taking Loan at the Origin (Rs. 10Lacs) if it was for acquiring Capital Assets then it will be regarded as capital Receipt otherwise revenue. since, it is a Pvt. Ltd. entity you have to prepare Book Profits Statement as per Schedule VI and it should be Treated accordingly for MAT calculation purpose.

Agreed with both Experts but This Suggestion should also be kept in mind while booking accounting Transactions and finalizing Profits.

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Armman

Armman (Querist)
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14 August 2011 thanks for your contribution