TMI Blog2021 (11) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, then, we do not think that question as pressed raises any substantial question of law. The appeal is devoid of merits and it is dismissed with no order as to costs. We have not opined on the second part, i.e., whether or not the assessee is engaged in the business of money lending or banking since we have confirmed that respondent is entitled to deduction on bad debts in view of first part of Section 36 (2) (i) of the Act. - INCOME TAX APPEAL NO. 1881 OF 2017 - - - Dated:- 27-10-2021 - K.R. SHRIRAM AMIT B. BORKAR, JJ. Mr. Suresh Kumar for Appellant. Mr. Sanjiv M. Shah for Respondent. ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.) 1. Respondent had filed the return of income on 27th October, 2005 declaring total income of ₹ 8,88,82,290/-. The Assessment Order under Section 143 (3) of the Income Tax Act, 1961 (the Act) was passed on 19th December, 2007 wherein the income was assessed at ₹ 14,51,98,159/-. In the Assessment Order, the Assessing Officer had disallowed the interest on deposit written off of ₹ 15,73,952/- and deduction of principal amount of deposit of ₹ 4,35,00,000/- written off. 2. As a background to this dis-all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT erred in allowing the capital loan of ₹ 4.35 Crores as integral to interest separately assessed on accrual basis, to erroneously apply the law laid by Hon ble Bombay HC in the case of udumjee Pulp and Paper Mills Ltd. and Shreyas S. Mokharia? . 3. Whether on the facts and in the circumstances of the case and in law, the ITAT erred in holding the giving loan of ₹ 4.35 Crores as done in ordinary course of business to improve the business health of the assessee company when it is an admitted fact that the said loan to the group company was initially given for 30 days to help them tide over some liquidity problem facted by the said Mahindra Construction Company Ltd. which were never recovered, which fact stand even admitted in its letter dated 24.03.2011 submitted to AO in AY 2002-03 in response to notice of penalty u/s 271(1)(e), thereby rendering the judgment of ITAT erroneous in holding the said loan as given in ordinary course of business? . 4. In fact, ITAT had allowed respondent s appeal even with regard to the addition of ₹ 15,73,952/- whereby respondents had impugned the action of the Assessing Officer in bringing to tax interest income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that respondent was not engaged in any business of money lending and that non-recovery was a capital loss. 8. We have also considered the judgment of Division Bench of this court in Pudumjee Pulp and Paper Mills Limited (Supra) which has been relied upon by ITAT where similar situation had prevailed. In that case the assessee had made inter-corporate deposit with another concern and in some of the years interest was offered to tax. Subsequently, part of the debt was sought to be written off and claimed as bad debts within the meaning of Section 36 (1) (vii) read with Section 36 (2) of the Act. The claim was revised by the tax authority primarily on the ground that the conditions of Section 36 (1) (vii) read with Section 36 (2) of the Act were not applicable in as much as the assessee was not carrying on business of money lending and that the principal amount claimed as bad debts was not in fact offered to tax either in the relevant Assessment Year or in the earlier Assessment Year. The Division Bench after considering the submissions observed that even if one of the conditions of Section 36 (2) (i) of the Act is satisfied then the bad debts claimed under Section 36 (1) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for bad and doubtful debts made in the accounts of the assessee. (viii) to (xvii) .... .... .... .... (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply - (i) no such deduction shall be allowed unless such 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 is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee. 10. So far as Section 36(1)(vii) of the Act is concerned, it is a settled position in law that after 1 st April, 1989, it is not necessary that the debt itself must be proved to be irrecoverable. The only requirement is that the amounts claimed as bad debts should be written off as irrecoverable in the account of the Assessee (see TKF Ltd. v/s. CIT 323 ITR 397 ). The satisfaction of the above provision is not disputed by the Revenue. The hub of the controversy is whether the requirement of Section 36(2)(i) of the Act is satisfied. 11. It is noticed that Section 36(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares transacted. This Court held that the debt comprises not only the brokerage which was offered to tax but also principal value of shares which was not received. Therefore, even if a part of debt is offered to tax, Section 36(2)(i) of the Act, stands satisfied. The test under the first part of Section 36(2)(i) of the Act is that where the debt or a part thereof has been taken into account for computing the profits for earlier Assessment Year, it would satisfy a claim to deduction under Section 36(1)(vii) read with Section 36(2)(i) of the Act. In fact, the Revenue also does not dispute the above provisions as no submission in that regard were made during the course of hearing before us. 13. Therefore in view of the above self evident position in Section 36(2)(i) of the Act as well as decision of this Court in Shreyas Morakhia (supra), no substantial question of law arises for our consideration. 9. In the case at hand, the fact that interest income of respondent for the Assessment Year 2001-02 relating to the deposit of ₹ 4,35,00,000/- was indeed taxed as business income has not been disputed. Thus, advances of deposit is to be understood as having been done in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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