How to deal with a case where contract revenue is not recorded in the books of account, but offered to tax as per ICDS, and turns bad.

Manual - ICDS III : Construction Contracts

An assessee cannot write-off a debt which was not recorded in the books of account but offered to tax. In this case ICDS cannot be invoked to claim deduction of uncollectible amounts as the same cannot be written-off in the books of account. The deduction under such a situation would, however, be available by virtue of second proviso to section 36(1)(vii) under which bad debts could be claimed as deduction without a write off in books of account under condition that the amount of debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year.

Dated: 22-8-2017