Income tax law has Explanation 1 to section 36 (1) (vii) by which any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee.
On the other side the principal clause (vii) states that the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year shall be eligible as a deduction.
Provisions for bad and doubtful debts are often found to be reduced from the respective sundry debtors balance in the balance sheet and it is only the net balance that gets to the assets total in the balance sheet.
This kind of disclosure is considered as actual write off by the Gujarat High Court in (2021) 439ITR761 while allowing deduction of such provision in computing book profits under section 115JB.
This brings out to surface a parameter to judge whether a debt is written off or not by looking at the placement of provision in the balance sheet . It is only those provisions for bad and doubtful debts that are shown separately on the liabilities side which are not admissible as deductions.
clause (vii) of section 36(1) is silent as to the manner of writing off the amount of debt in the accounts based on which understanding one can import the ratio of the Gujarat High Court decision for securing section 36(1)(vii) allowance by treating netting off as equal to writing off of debt in accounts as accounts-in-essential mean the financial statements per se and not sundry ledgers