If a company gave Unsecured Loan(Advances) to Mr. A (not being in pursuance of any business trade agreement i.e. he was not a party to sale or "DEBTOR"). He now turns INSOLVENT. How his account should be written off?? ( I believe it cannot be written off as Bad Debt as it was never taxed as income hence no expense can be claimed henceforth)
3 Replies
madhur gupta
(student/article )
(1022 Points)
Replied 01 May 2009
it has to be w/off in p&l then only it can be taken out of books
u cant keep it standing in books
however u r view pt.seems to b correct regarding taxation of it but that point will arise later when return will be filed,presently in books entry of w/off will be there whether i.tax accept it or not..........
Eric_K
(Article Ship)
(37 Points)
Replied 05 May 2009
This Case Laws would support my contention of not passing it through the P &La/c.
CITv/s. Cochin Co. Pvt. Ltd. (1989) 184 itr 230
Mahindra & Mahindra Ltd. V/s. CIT 261 ITR 501 (BOM)
Chetan Chemicals (P) Ltd 267 ITR 770 (Guj)
Pooja Chopda
(Practising Chartered Accountant)
(931 Points)
Replied 25 May 2009
Hi Eric,
The only way u can write off an account is thru P&L a/c - as a bad debt or a balance w/off.
Your contention as to taxation & caselaws is correct. It is a non-operating bad debt. But u do pass entries for many non-operating exp & incomes thru P&L a/c. There are many such advances given that are not debtors / due to sale, but are incidental to running a business..like advance to supplier or salary advance to employee or advance in nature of loan to employee..if such advances turn out to be bad debts...one has to route them thru P&L a/c.
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