2012 (11) TMI 18 - AT - Income Tax

Bad debts claim disallowed - the loan given does not find any mention in the list of loans and advances - CIT(A) allowed the claim - Held that - CIT (A) has given a finding that assessee is an NBFC. However from the material on record it is not clear that whether the assessee though being an NBFC has in fact advanced loans to parties as part of is business. The matter be remitted back to the file of A.O. with a direction to him to verify and pass an appropriate order as per law after considering the factual position in light of the decision of Apex Court in the case of T.R.F. LTD. Versus CIT (2010 (2) TMI 211 - SUPREME COURT) wherein held that after the assessment of section 36(1)(vii) w.e.f. 01.04.1989 in order to obtain a deduction in relation to bad debts it is enough of the bad debt is written off as irrecoverable in the accounts of the assessee - in favour of revenue for statistical purpose.

Summary

Issues:
1. Whether the bad debts claimed by the assessee are allowable as a deduction under section 36 of the Income Tax Act.
2. Whether the Tribunal's order dated 24-2-2010 should be recalled due to a mistake of fact.

Issue 1: The first issue revolves around the allowability of bad debts claimed by the assessee under section 36 of the Income Tax Act. The case involved the assessee, a company engaged in trading shares and finance, claiming bad debts of Rs. 22,25,000 written off during the year. The Assessing Officer (A.O.) disallowed the claim, stating that the loans given to certain parties did not fall under normal business transactions. However, the Commissioner of Income Tax (CIT) allowed the appeal, noting that as a non-banking financial company (NBFC), the loans given were part of the business and were allowable as bad debts under section 36(1)(vii) of the Act. The Tribunal, in its order dated 24-2-2010, allowed the Revenue's appeal, stating that the loans were not related to business transactions and were not admissible under section 36 of the Act. The assessee then filed a Miscellaneous Application for recalling the order, which was eventually allowed, and the matter was remitted back to the A.O. for further consideration.

Issue 2: The second issue pertains to whether the Tribunal's order dated 24-2-2010 should be recalled due to a mistake of fact. The Tribunal recalled its earlier order after finding that a mistake had crept in regarding the nature of the loans being considered as business advances. The Tribunal acknowledged that the loans given were in the nature of business advances and directed the matter to be reheard and decided accordingly. The A.O. was instructed to verify the factual position and pass an appropriate order in light of relevant legal precedents.

In conclusion, the judgment delves into the intricacies of determining the allowability of bad debts under the Income Tax Act, emphasizing the importance of considering the nature of transactions in the context of business activities. The decision highlights the need for a thorough examination of facts and adherence to legal principles in tax matters, ultimately ensuring a just and fair resolution in line with statutory provisions and judicial precedents.