2010 (11) TMI 802 - HC - Income Tax

Loss on sale of repossessed assets u/s 36(1) (vii) r/w Section 36 (2) - Whether assessee had satisfied the conditions as prescribed in Section 36(2) so as to allow deduction of loss of 1.56 crore u/s 36 (1) (vii) - Whether loss on sale of repossessed assets is a capital loss or it is a bad debt allowable u/s 36(1) (vii) R/W Section 36 (2) Held that - CIT (A) was right in his conclusion to held that the amount advanced by the assessee during the course of business could not be recovered would be treated as bad debt allowable under Section 36 (2) of the Act. Relied on A.W.Figgies case 2001 (9) TMI 46 - CALCUTTA High Court . Depreciation on computers and peripherals at the rate of 60% is allowable now settled by the judgment of this Court in the case of Commissioner of Income-Tax vs. BSES Yamuna Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT

Summary

Issues:
1. Allowance of loss on sale of repossessed assets under Section 36(1)(vii) of the Income-Tax Act.
2. Allowance of depreciation at 60% on computer accessories and peripherals.

Issue 1:
The first issue revolves around the allowance of a claimed loss of 1,56,04,644/- as bad debt under Section 36(1)(vii) of the Income-Tax Act. The appellant, a financing company, repossessed cars from defaulters and sold them at a loss, which they sought to deduct as bad debt. The Assessing Officer initially disallowed the claim, citing a judgment from the Allahabad High Court. However, the CIT (A) reversed this decision, holding that the claim fell under Section 36(1)(vii) read with Section 36(2) of the Act, emphasizing the distinction between revaluation and actual sale of repossessed assets. The ITAT upheld this view, concluding that the judgment relied upon by the Assessing Officer was not applicable to the present case. The CIT (A) further emphasized that the appellant, being a non-banking Financial Company (NBFC), was engaged in money lending, making the treatment of the loss as bad debt permissible under the Act. The CIT (A) analyzed the transaction details and concluded that it was a write-off of bad debts, despite the nomenclature used by the appellant. The judgment in A.W.Figgies case was cited to support the allowance of the bad debt under Section 36(2) of the Act. Consequently, the Court dismissed the appeal, affirming the decisions of the CIT (A) and ITAT.

Issue 2:
The second issue pertains to the allowance of depreciation at the rate of 60% on computer accessories and peripherals purchased by the appellant. The Assessing Officer had initially allowed depreciation at 25%, which was challenged by the appellant. The CIT (A) overturned the Assessing Officer's decision, holding that 60% depreciation was permissible under the Act for computer accessories. This decision was upheld by the Tribunal. The Court noted that the issue was settled by a previous judgment of the Court in the case of Commissioner of Income-Tax vs. BSES Yamuna Powers Ltd., which established that 60% depreciation on computers and peripherals was allowable. Therefore, the Court found no legal question for determination on this issue and dismissed the appeal accordingly.

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