2015 (9) TMI 1695 - AT - Income Tax

Disallowance of bad debts write-off - Amount written off by the assessee is on advance given by it to one PIE Education P. Ltd. - HELD THAT - When assessee itself had not charged any interest on the amount advanced it cannot say that any income from such loans were taken into account for computing its total income. For the simple reason that assessee had never charged any interest on the loan to PIE Education P. Ltd such loan cannot be treated as money lent by the assessee in the ordinary course of a business of money-lending. In our opinion assessee is squarely hit by the limitation placed by section.36(2)(i) of the Act. Claim of the assessee also cannot be considered as a business loss for the reason that assessee was not in the business of providing education and training. Even if we presume that assessee was carrying on a business of lending money the amount written off here was not lent in the course of money lending business. Coming to the judgment of Hon ble Apex Court in the case of T. R. F. Ltd 2010 (2) TMI 211 - SUPREME COURT the question there was whether for a claim of bad debts write- off in the books alone was sufficient - In the judgment of Amalgamations P. Ltd 1997 (4) TMI 8 - SUPREME COURT question was whether loss incurred for providing bank guarantee for loans taken by a subsidiary could be allowed. Assessee here has nowhere stated that PIE Education P. Ltd is a subsidiary of the assessee company nor was the write-off in relation to any bank guarantees. As held that solitary transaction by itself could not be considered as an impediment for construing the meaning of money lending business. As against this assessee here had advanced the money to PIE Education P. Ltd without any agreement regarding interest and that too not as a part of its lending activity if at all it had any. Lower authorities were justified in disallowing the sum - Ground.3 of the assessee is dismissed. Disallowance u/s.14A on account of assessee s own submission - HELD THAT - Sole grievance was that the disallowance u/s.14A of the Act made on account of assessee s own submission was considered by the AO as a disallowance made by the latter - As admitted addition we are of the opinion that assessee cannot have any grievance now. We do not find any reason to interfere in the order of lower authorities on this issue also. Ground.4 of assessee is dismissed.

Summary

Issues:
1. Disallowance of bad debts write-off.
2. Disallowance under section 14A of the Income-tax Act.

Issue 1: Disallowance of Bad Debts Write-Off:
The appeal challenged the confirmation of the disallowance of bad debts write-off amounting to Rs. 4,86,14,074. The assessee argued that the loans were written off as bad debts in the course of its business, citing relevant case laws and emphasizing its lending activities supported by interest income. The assessee contended that the write-off was a business loss due to the non-recovery from the borrower, PIE Education P. Ltd. The Department, however, argued that the loans were not part of the assessee's business as no interest was charged on them, thus not meeting the criteria for a bad debt write-off under section 36(2)(i) of the Act. The tribunal found that since no interest was charged on the loan, it could not be considered as money lent in the ordinary course of a money-lending business. The tribunal dismissed the appeal, stating that the assessee failed to demonstrate that the loan was part of a money-lending business, leading to the disallowance of the claimed bad debts.

Issue 2: Disallowance under Section 14A of the Income-tax Act:
The second ground of appeal pertained to the disallowance under section 14A of the Act, where the assessee contested that the disallowance made by the Assessing Officer was based on the assessee's own submission. The tribunal noted that the assessee had indeed calculated the disallowance amount under section 14A in its communication to the AO. As the disallowance was acknowledged by the assessee, the tribunal found no basis to interfere with the lower authorities' decision on this issue. Consequently, the tribunal dismissed the appeal on this ground as well, affirming the disallowance under section 14A of the Act.

In conclusion, the tribunal dismissed the appeal of the assessee, upholding the disallowance of bad debts write-off and the disallowance under section 14A of the Income-tax Act. The judgment was delivered on September 11, 2015, by the Appellate Tribunal ITAT Bangalore, with detailed analysis and references to relevant legal provisions and precedents.