Bad Debt of Loan given to non related party

[Anand Paltewar]

We are in to seed and fertilizers trading business we are also doing money lending in same Proprietary firm, one loan of rs 2000000 become bad debt now ,as per provision sec 36 we have not billed or sale any goods and services to that firm.we are paying tax on interest on loan . so is it logical to claim bad debt of loan which is default.

Request you to guide us can I show Bad Debt in my P&L .

Anand

[DR.MARIAPPAN GOVINDARAJAN]

Your query is not clear.

[Anand Paltewar]

We have given loan of ₹ 2000000 to one party .

now loan is default ,he is not not in position to pay intrest and principal from last 4 years.

Can we show ₹ 2000000 bad debt in books ?

[Ganeshan Kalyani]

It need to be studied, as lending money is your second business , trading of seed being primary. Business related expenses are allowed as deduction in profit and loss account. Do you prepare one p&l, b/s for both the business?

[Anand Paltewar]

Yes ,we prepare only one p&l and B/s for both business under proprietary firm.

[Ganeshan Kalyani]

If it is so then the bad debt should be allowed to be debited to P&L. However, i welcome views of my collegue expert in this regard. Thanks.

AI Summary

Bad debt deduction: business loan in default may be debited to P&L when lending is part of the business activity. Whether a proprietary firm that carries on both trading and money lending and prepares a single profit and loss account can debit a loan to a non related party as a bad debt where the loan has been in default for several years; advisers indicate that if lending is part of the business and both activities are shown in one P&L, a business bad debt may be debited to P&L, subject to statutory conditions and factual proof of irrecoverability.