2001 (4) TMI 919 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the issue of whether the assessee was entitled to deduction of a bad debt amounting to Rs. 1,27,856.

Summary:
The assessee, a registered firm engaged in money-lending, faced a situation where a sister concern, Vinod Steel Limited, ran into financial difficulties and was unable to repay loans. The assessee wrote off a total amount of Rs. 1,98,863 as bad debt, but the Assessing Officer disallowed a portion of this claim. The Inspecting Assistant Commissioner allowed a part of the claim but disallowed the rest, stating that not all advances were in the course of money-lending business. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld this decision.

Appellant's Argument:
The appellant cited a judgment from the Andhra Pradesh High Court to support the claim that the bad debt deduction was permissible, given the financial difficulties of the sister concern and the legitimate nature of the loan transactions.

Revenue's Argument:
The Revenue relied on a Supreme Court judgment to argue that certain conditions must be met for a deduction as bad debt, emphasizing the distinction between revenue and capital losses. The Revenue contended that the Assessing Officer's decision was correct and that the claim for Rs. 1,27,856 should be disallowed.

Court's Decision:
The court considered the commercial nature of transactions between commercial concerns and the importance of transparency in accounting for loans to related entities. It noted that the Assessing Officer's decision was impartial and correctly allowed a deduction of Rs. 71,007 as bad debt. The court upheld the decisions of the lower authorities and answered the question in the affirmative, denying the deduction of Rs. 1,27,856. The matter was disposed of with no order as to costs.