If the tax deducted at source from you business income is not deposited with the income tax (I-T) department, then you can claim it as bad debt in your account books.
A recent ruling by the Income Tax Appellate Tribunal (ITAT), Mumbai, has come as a respite for those whose tax deducted at source (TDS) is deducted by the person paying remuneration, but it is not deposited with the I-T.
As per income tax rules, the person deducting the TDS should deposit it with the department by 7th of the subsequent month. If not, the person from whose income the TDS is deducted, but not deposited, is not able to claim credit for the tax paid.
"He then faces problem in filing I-T return as he could not show the tax as paid because it was not deposited with the us," a senor I-T officer said, requesting anonymity because he is not authorised to speak to the media.
But now after the ITAT's latest ruling, aggrieved taxpayers can claim the TDS amount not deposited with the I-T as bad debt or irrecoverable amount in their account books.
“This would reduce the tax liability of such a person who suffers because of non-deposit of TDS," said Naresh Dharia, a Mumbai-based practising chartered accountant.
The ruling came in an appeal filed by Indian Products Trading Company Private Limited, a company engaged in the business of export of soft stone powder. The case pertained to the assessment year 2004-2005.
As per the case, the company also advanced money to various parties on which they had received interest income.
While paying the interest, the payers (debtors) deducted TDS but did not deposit the same with the department. In this case, the amount of TDS was Rs 1.86 lakh.
However, when the company claimed the amount as bad debt, I-T's assessing officer did not allow it.
The assessing officer had said the moment TDS is deducted by the payer, the TDS amount becomes the government's property that cannot be allowed as bad debts.
The company then approached commissioner of income tax (appeal) but he too confirmed the assessing officer's order. The company then filed an appeal in the ITAT.
It said that out of this amount, the assessee has not received Rs 1.86 lakh withheld by the debtors.
“Thus this amount certainly represents a debt due from the debtor which has not been realised,” the order said, while allowing writing off this debt as irrecoverable.
Dharia said the order would benefit business entities, but not employees earning salaries.