9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (8) TMI 44 - HC - Income TaxBad debts u/s 36 - A.O. held amount as capital investment - CIT upheld addition - Tribunal deleted addition - Held that - assessee is engaged in the business of money lending. The income earned from the illegal business is also taxable income - There is a loss to the assessee as both the companies in which assessee made deposits have closed down their business and disappeared from town. Recovery of the amount in question is not possible. So, the assessee had written off the amount in the books of accounts as bad debt - to treat the debt as a bad debt had to be a commercial or business decision of the assessee based on the relevant material in the possession of the assessee. Once the assessee records the debt as a bad debt in his books of account that would prima facie establish that it was a bad debt unless the Assessing Officer for good reasons holds otherwise - Following decision of Director of Income Tax (International Taxation) vs. Oman International Bank 2009 (2) TMI 54 - BOMBAY HIGH COURT , CIT vs. Sri Ram Gupta 2005 (5) TMI 64 - ALLAHABAD High Court and TRF Ltd. vs. CIT 2010 (2) TMI 211 - SUPREME COURT - Decided against Revenue.
Issues:
Whether the assessee fulfills the conditions under Section 36 of the Income Tax Act for bad debt write-off? Analysis: The case involves an appeal filed by the department under Section 260-A of the Income Tax Act, 1961 against the judgment of the Income Tax Appellate Tribunal for the assessment year 2006-07. The main issue revolves around whether the assessee, engaged in money lending business, can write off a sum of Rs.39 lacs as bad debt in the books of account. The department argues that the deposits with banking companies do not qualify as part of money lending business, citing legal precedents. They also question the nature of the deposits and the absence of a money lending license. On the other hand, the assessee justifies the write-off, stating the irrecoverability of the amount due to the closure of the banking companies. The Tribunal had deleted the addition, and the department appealed to the High Court. The High Court observed that the assessee has a history of money lending business and had made deposits with banking companies, creating a debtor-creditor relationship. Due to the closure of the companies, recovery of the amount became impossible, leading the assessee to write off the sum as bad debt. The Court highlighted the amendment in 1989, which simplified the process of claiming bad debt deductions, emphasizing that once written off in the accounts, the debt is considered bad. The commercial or business decision to write off a bad debt is based on the assessee's judgment and does not require further proof. Legal proceedings are not necessary for bad debt recovery, as established in previous judgments. Citing legal precedents and the amendment to Section 36 (1) (vii) of the Income Tax Act, the Court upheld the Tribunal's order, stating that the satisfaction of the assessee in deeming the debt irrecoverable is sufficient for claiming bad debt write-off. The disappearance of the banking companies without payment further supported the assessee's position. The Court found no reason to interfere with the Tribunal's decision, ruling in favor of the assessee and dismissing the department's appeal.
|
