Income Tax-36i(vii)

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Yashwanth Jain (Querist)
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08 July 2008 This is with reference to sec36 of the income tax act,where an amount will be allowed as baddebt Provided it was offered for income earlier,my question is say I have a Particular asset used for the purpose of the business,its WDV value now is Rs.200000,I sell it for Rs.10 lakhs and hence i will gain Rs.800000,meanwhile what happens is the person to whom the asset is sold goes insolvent and thereby i loose Rs.10 lakh(Bad debt).Now as per Provisions of the income tax act, my income is Rs.800000 and my Baddebt is Rs.10 lakhs,can i cliam the baddebt of Rs.10 lakh even though my inome is only Rs.8 lakhs?if Yes,then the reason,(Particular reference to any case law,if any)

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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02 April 2012 Income arising on sale of depreciable asset is taxable as Capital Gain and NOT business income.

Further, deduction for bad debts is allowed from business income and NOT capital gain.

For claiming bad debts an amount which was earlier offered for tax as BUSINESS INCOME should be non-recoverable.

in your case the capital gain income has become non-recoverable.

Accordingly such loss is NOT allowed as bad debts.