Credit balance of customers lying with us for over 4-5 years

• Under Sec.68 of IT Act, unexplained credit is taxed.

/articles/section-68-of-income-tax-act-1961-9781.asp

• It is a time barred debt, it should be transfered to P&L A/c. It will be taxed u/s 41(Deemed Income).

Thanks a lot Deepesh..it helped me a lot..!!

Originally posted by : Deepesh Ruhela
	Under Sec.68 of IT Act, unexplained credit is taxed. /articles/section-68-of-income-tax-act-1961-9781.asp It is a time barred debt, it should be transfered to P&L A/c. It will be taxed u/s 41(Deemed Income).

Agreed wid Deepesh

@ Deepesh..Just had another query regarding the same issue. I came across a term "Open ended debt" which I think, applies to this case since, the credit balance is unsettled because the client did not do any business with the customer. which section of Limitation Act, 2005 applies to this case.

Further, since the source of the credit balance is identified(i.e. credit balance is unsettled since no request letter is received from the customers claimin the amount), can this be regarded as unidentified income and debited to P&L A/C as suggested by you?

sorry Anjali for late reply...no idea about  Limitation Act. In case if the source of the credit balance is identified and there is no chance of repayment, and the credit balance stand in balancesheet since last 3 or more years. Then it should be transfer to P&L A/c.(credited to P&L A/c not debited)