2019 (1) TMI 1762 - AT - Income Tax

Disallowance of Bad Debts written off - allowability of Bad Debts u/s 36(1)(vii) r.w.s. 36(2) - Whether limited to the head of income from business and profession even though such amount earlier taxed as a capital gain? - HELD THAT - Entries being routed through P L account does not entitle to be claimed as a bad debts or business loss for the simple reason that irrespective of whether these entries in the revenue field or capital field in terms of requirements of the Companies Act, it is to be routed through P L account nevertheless. It is only elementary that what can be allowed as bad debts or business loss is only put in the revenue filed in connection with the business operation. Substance in the actions of the authorities below and concur with the views so taken by the authorities below that the loss in question cannot be allowed as a bad debts or business loss. Having said that, however, we see merits in the plea of the learned counsel that once it is not in dispute that loss has indeed incurred even if it is not in the revenue field or bad debts, the same should be considered by the AO for being allowed in the capital filed. AO having rejected the case of the assessee for the loss in the revenue field, it is only corollary thereto that as long as it is a genuine loss, as undisputed facts of the present case clearly indicate, the loss is to be treated as loss in the capital field, and the matter is to be examined further from that angle - this aspect of the matter is not at all examined by the Assessing Officer - we remit this issue to the AO for examination of the alternative claim of the assessee that the loss be allowed as capital loss - Assessee's appeal is allowed for statistical purposes

Summary

Issues:
1. Disallowance of Bad Debts under section 36(1)(vii) r.w.s. 36(2) for assessment year 2011-12.

Analysis:
The appellant challenged the order passed by the CIT(A) confirming the disallowance of Bad Debts written off amounting to ?48,00,000. The Assessing Officer disallowed the claim of bad debts as it was related to shares held as investments and not reflected in the business income. The CIT(A) upheld the decision, stating that bad debts can only be written off in respect of income from business and profession, not capital gain. The appellant argued that the amount was receivable for years from the share broker and was written off as it was deemed unrecoverable. The Tribunal disagreed with the appellant, affirming that bad debts can only be written off in connection with income from business and profession, not capital gain. The appeal was dismissed.

2. Consideration of loss as capital loss instead of bad debts or business loss.

The appellant contended that if the loss could not be treated as bad debts or business loss, it should be considered as capital loss. The Tribunal agreed that even if the loss did not qualify as bad debts or business loss, it should be examined as a capital loss since it was a genuine loss. The Tribunal remitted the issue to the Assessing Officer for further examination of the alternative claim that the loss be allowed as a capital loss. The appeal was allowed for statistical purposes, indicating a need for reassessment regarding the treatment of the loss as a capital loss.