September 2013
136 ITD 315 (Mum.) Arrow Coated Products Ltd. vs. ACIT A.Y 2006-07 Dated : 14th March, 2012
By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
Reading Time 2 mins
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Section 36(1)(vii)—Deduction of bad debts available when debited to P&L Account—In order to claim deduction on account of bad debts, it is not necessary that individual debtor’s account has to be closed by crediting said account—a mere reduction in loans and advances/debtors account to extent of provision for bad and doubtful debt is sufficient
Facts:
The assessee had made provision for bad and doubtful debts in books of accounts in AY 2004-05 of Rs. 70 lakh. The provision was debited to Profit and Loss Account and also correspondingly reduced from gross total sundry debtors in the balance sheet. The individual ledger of debtor account was not written off by the amount of doubtful debts. In the return of income the assessee had not claimed deduction of provision of doubtful debts for AY 2004-05. In AY 2005-06 & 2006-07, the assessee wrote off the provision of doubtful debts of Rs. 20,36,000 (being part of Rs. 70 lakh) from the individual account of debtors thereby closing debtors account. The AO held that as the amount of doubtful debts was not transferred to P&L Account, the claim cannot be allowed. The CIT(A) upheld the order of the AO.
Held:
After insertion of Explanation to section 36(1)(vii), the taxpayer is now required to debit Profit and Loss Account and also simultaneously reduce debtors account to the extent of corresponding amount. It is not necessary that individual debtors account be closed in order to claim deduction of bad debts. In the present case the assessee had not claimed deduction on account of bad debts in AY 2004-05. It is not required for the assessee to actually close the individual account of each debtor.
