2012 (7) TMI 790 - AT - Income Tax

Disallowance of claim of bad debts - Loan given to party - As per assessee s claim that party turned out insolvent, therefore, the assessee had written off the loan Held that - Assessee is in the line of money lending business and this amount had been advanced as loan - assessee has written off this amount as per Section 36(1)(vii) in the books of account - disallowance rightly deleted - In favor of assessee

Summary

Issues:
Deletion of disallowance of claim of bad debts of Rs. 19,00,000.

Analysis:
The appeal before the Appellate Tribunal ITAT, Ahmedabad stemmed from the order of CIT(A)-I, Ahmedabad for the assessment year 2009-10. The sole ground of the Revenue was against the deletion of the disallowance of the claim of bad debts amounting to Rs. 19,00,000. The Assessing Officer (A.O.) noted that the assessee had claimed this amount as bad debt in relation to a loan advanced to Trident Prolifecare Pvt. Ltd. in the previous assessment year. The A.O. disallowed the claim, stating that the assessee was not engaged in money lending business and had not offered this amount for taxation in the previous year.

The CIT(A)-I, Ahmedabad allowed the appeal in favor of the assessee after considering the submissions. It was observed that the appellant was involved in finance activities, evident from its profit and loss account showing interest income. The appellant had advanced loans and borrowed funds, leading to a net interest income. The CIT(A) highlighted that the appellant's engagement in money lending was supported by its financial statements for the relevant years. Referring to Section 36(1)(vii) of the Income Tax Act, it was noted that the deduction of bad debt written off could be allowed if the amount had been taken into account in computing the assessee's income. Relying on legal precedents and the factual position, the CIT(A) directed the Assessing Officer to delete the addition of Rs. 19,00,000.

Upon the Revenue's appeal before the Tribunal, the deletion made by the CIT(A) was vehemently opposed by the Departmental Representative (D.R.). However, the Tribunal upheld the CIT(A)'s decision, emphasizing that the appellant was indeed in the business of money lending and had correctly written off the bad debt as per the provisions of Section 36(1)(vii). Citing a relevant Supreme Court judgment, the Tribunal concluded that there was no basis to interfere with the CIT(A)'s order and dismissed the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the decision of the CIT(A) to delete the disallowance of the claim of bad debts amounting to Rs. 19,00,000.