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Allowability of Doubtful Loans and Advances

Mohit Agrawal (AUDIT MANAGER) (104 Points)

15 March 2021

A company has given a loan to the third party amounting to Rs. 35 Lacs in the earlier years. Now, such amount is doubtful for recovery and due in the Books of accounts since a long time. Can company book it as a Bad Debts in the current F.Y and whether it will be allowable expenditure as per IT provisions ?

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2 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24588 Points)
Replied 15 March 2021

It will be treated as NPA and the loan should be shown as bad and doubtful debts. Yes it will be allowed under IT act.
Bad debts [Section-36(1)(vii)]
Such debt or part thereof must have been taken into account in computing the income of the assessee of the previous year or of an earlier previous year, or.
It represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee.