Jayanta Bandyopadhyay 29 August 2024

Write off of icd our of profit

In 2018, we had given Inter corporate deposit (ICD) to Target Company and then subsequenbtly made outright putchased that company. Currently, this advances is appearring under "Other Advances" in our books of accounts.

In 2024, we (acquirer) would like to set off this ICD from our profit.

Is it permissible under IT Act and IAS?

What is the way out"

Kindly guide

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2 Replies

Rama chary Rachakonda (Secunderabad/Telangana state Highcourt practice watsapp no.9989324294 ) 29 August 2024

I understand your concern. You've provided an inter-corporate deposit (ICD) to the Target Company, which you later acquired. Now, you want to write off this ICD against your profits in 2024. Permissibility under IT Act and IAS: - IT Act: As per Section 36(1)(viii) of the Income-tax Act, 1961, you can claim a deduction for "any expenditure incurred" on interest on borrowings. However, since ICD is not a borrowing, this section might not apply directly. - IAS: As per Ind AS 109, you can recognize a gain or loss on the extinguishment of a financial liability (like ICD). However, write-off against profits might require careful consideration. Way out: 1. Evaluate the ICD's nature and terms. 2. Consider the accounting treatment and journal entries made so far. 3. Assess the tax implications and potential write-off options. 4. Consult a chartered accountant or tax professional to ensure compliance with IT Act and IAS. 5. Document the write-off process and obtain necessary approvals.

T. Kalaiselvan, Advocate (Advocate) 30 August 2024

ICD – An Inter-Corporate Deposit (ICD) is an unsecured loan extended by one corporate to another. An Inter-Corporate Deposit (ICD) is an unsecured borrowing by corporates and Financial Institutions from other corporate entities registered under the Companies Act 1956.

The ICD is an asset to the company hence it will appear on the books of account

In Ashish Mahendrakar vs The State Of Maharashtra And Ors on 13 September, 2019 it was held that:

(d) The petitioner contends that the inter-corporate deposits are governed by and regulated under the provisions of the Companies Act and the Rules framed thereunder. On the one hand, the definition of 'deposit' under section 2(c) of the MPID Act, if properly construed, in the light of the avowed object of the MPID Act excludes from its purview the inter- corporate deposits. On the other hand, the definition of 'deposit' provided in Rule 2(1)(c)(vi) of the Companies (Acceptance of Deposits) Rules, 2014 explicitly excludes any Shraddha Talekar PS amount received by the Company from any other Company from the term "deposit". As the inter-corporate deposits are specifically excluded from the term "deposit" under the provisions of the Companies Act and Rules framed thereunder, the provisions of MPID Act cannot be made applicable to such deposits. The petitioner asserts that the inclusion of the inter- corporate deposits in the outstanding amount and the consequent issuance of the attachment orders in respect of various properties, by taking into account the said outstanding amount, is legally impermissible. Thus, the petitioner seeks a declaration that the inter-corporate deposits do not come under the purview of the definition of 'deposit' under section 2(c) of the MPID Act and a consequential direction to delete and/or quash the names of the inter-corporate deposit holders/lenders from the list of the depositors in MPID Case No.4 of 2014.

4. Shri Setalvad, the learned Senior Counsel for the petitioner mounted a multi-pronged attack to inclusion of the inter-corporate deposits as the deposits, in the repayment of which, the petitioner committed default fraudulently, within the mischief of section 3 of the MPID Act. First and foremost, the learned Senior Counsel drew our attention to the object of enactment of MPID Act. It was strenuously urged that the stated object of the Act was to address the mischief of swindling the deposits collected from public, mostly middle-class and poor people, on the promise of unprecedented higher rates of interest or rewards. The MPID Act, according to the learned Senior Counsel, was never intended to govern the inter-corporate debts or transactions, which form a class apart by themselves. Secondly, it was submitted that the said area of inter-corporate transactions has not been left unregulated. There are efficacious and adequate provisions in the Companies Act, 2013 ('Act 2013'). Chapter V of the Act, 2013 subsumes provisions to regulate the acceptance of deposits from public under the title "acceptance of deposits by Companies". Even provisions for damages for fraud and punishment for contravention of the regulatory provisions have been made therein. Under the Companies Act, 1956 also, provisions were made in section 58A, 58AA and 58AAA to Shraddha Talekar PS address the issue of acceptance of deposits by the Corporate entities. Moreover, in exercise of the powers conferred by section 73 and 76 read with section 469 of the Companies Act, 2013, the Central Government has framed Rules namely, Companies (Acceptance of Deposits) Rules, 2014 to further regulate the acceptance of deposits. Shri Setalvad laid emphasis on the definition of 'deposit' in Rule 2(1)(c) of the said rules which expressly excludes any amount received by the company from another company from its purview, to draw-home the point that inter-corporate deposits do not fall within the tentacles of the provisions of MPID Act. Thirdly, it was submitted that the provisions of the MPID Act cannot be so construed as to override the provisions of the Companies Act, Rules framed thereunder, and other Central legislations, in view of the object with which the MPID Act was enacted by the State Legislature. According to Shri Setalvad, inclusion of inter-corporate debts/deposits within the purview of the MPID would run counter to the clear and unambiguous intent of the legislature.

10. It is nobody's case that the above-named four companies do not fall within the definition of "Financial Establishment". The controversy revolves around the question as to whether the money accepted by the aforesaid companies in the form of inter-corporate deposits falls within the dragnet of "deposit", within the meaning of MPID Act. The learned Special P.P. was within his rights in advancing the submission that, in the facts of the instant case, the inter-corporate deposit do not fall within any of the sub- clauses (i) to (vii) of clause (c) so as to exclude them from the ambit of the definition of deposit. However, the petitioner has asserted that the fact that the definition of 'deposit' under section 2(c) does not specifically exclude inter-corporate deposits from its purview does not conclusively determine the issue. The object behind the enactment of the MPID Act and the other Shraddha Talekar PS governing provisions of the Central legislation need to be borne in mind to determine as to whether the inter-corporate deposits fall within the ambit of the term 'deposit' under section 2(c).

42. We note the aforesaid offer on behalf of the petitioner. In our view, it would in the interest of the depositors to direct the financial establishments to first deposit the balance amount, (in addition to the amount of Rs.24 crores secured by the competent authority) towards the liability of the individual/non-corporate depositors, before the financial establishments can be permitted to work out their remedies before the Special Court as regards the notifications of attachment of the properties, which have been issued taking into account the amount of inter-corporate deposits. We clarify that we have not examined the question of the exact liability of the financial establishments towards the deposit holders excluding the corporate deposits. It would be for the Special Court to consider the said aspect and pass appropriate orders in the event the financial establishments make applications regarding the attachment orders, which have been issued taking into account the amount of inter- corporate deposits. We, however, make it clear that the financial establishments will have to deposit the entire balance amount towards the liability of the depositors, excluding the inter-corporate deposits, and then only the prayer of the financial establishments in respect of the attachment orders can be considered.