AO's Query on Bad Debt Claim – Need Guidance on Documentation

[Ramanathan Seshan]

Dear Experts,

During the assessment proceedings, the Assessing Officer (AO) has raised a query regarding our claim of bad debts as an expense in the income tax return (ITR). The AO is asking us to prove when the related income was originally offered to tax, since we are now writing it off as bad debt. We had claimed the amount as a bad debt under allowable expenses in the ITR, and now need to substantiate this claim. Could anyone please guide on how to effectively address this—what kind of documentation or proof would be acceptable to the AO to justify the bad debt claim?

Regards,

S Ram

AI Summary

Taxpayer Seeks Clear Guidance on Substantiating Bad Debt Claims Through Comprehensive Financial Documentation and Recovery Evidence A taxpayer sought guidance on substantiating a bad debt claim during income tax assessment proceedings. An expert respondent advised providing comprehensive documentation including financial statements, invoices, bank records, and correspondence demonstrating the debt's original recognition as income and unsuccessful recovery attempts, in compliance with Section 36(1)(vii) of the Income Tax Act, 1961.