The Delhi High Court has recently issued a crucial ruling regarding bad debt deduction rules under Section 36(1)(vii) of the Income Tax Act, 1961. This ruling is important for you to know before you do ITR Filing and make a decision on bad debts.
Important Highlights of Delhi HC Meeting
Recently, the Delhi High Court resolved a case regarding Section 36(1)(vii) when an assessee tried to claim a bad debt deduction. The Income Tax Department disallowed the claim on the grounds that the assessee was not engaged in the business of lending money. So, the delhi government also upheld the decision of I-T Department with the clarification:
- Businesses engaged in banking or money lending activities can claim bad debt deductions under Section 36(1)(vii).
- Businesses not involved in lending money as primary business activity can not write off bad debts and claim them as a deduction.
- Advancing money to another party in a business transaction doesn’t qualify as lending under the bad debt deduction rules.
- Business involved in other business activities must avail alternative provisions under the income tax act for such write-offs.
Impact on Income Tax Return Filing
Businesses and professionals that need to file their ITR have now clear understanding on bad debt deduction rules. Thus, it is clear now that the businesses engaged in lending as a core function can only claim these tax deductions. Companies must now ensure whether they are eligible for deductions before ITR Filing to ensure you get IT refund on time and avoid scrutiny from tax authorities.
If you want any other guidance concerning ITR Filing Updates & Announcements, please feel free to talk to our business advisors at 8881-069-069.
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