2017 (4) TMI 970 - HC - Income Tax

Entitlement to deduction of Bad Debts written off in the books - Held that - The claim of bad debts was rejected holding that the assessee had not complied with the provisions of section 36(2) of the Act. To this extent, the order of the tribunal is misconceived for the reason that the embargo placed in section 36(2) would not apply in the case of a non banking financial company which status, the appellant admittedly enjoys. All that remains is to examine if the debt has been written off in accordance with the mandate of section 36(1)(vii) of the Act. We thus remand the matter to the file of the assessing officer for the limited purpose of examining whether the amounts have been written-off in accordance with the methodology set out by the Supreme Court in Southern Technologies vs. The Joint Commissioner of Income Tax, Coimbatore (2010 (1) TMI 5 - SUPREME COURT OF INDIA) and Vijaya Bank vs. Commissioner of Income Tax (2010 (4) TMI 46 - SUPREME COURT ). Substantial question of Law No.1 is decided in favour of the assessee by way of remand. Claim of deduction of long term capital loss on sale of shares - Held that - We are of the opinion that the matter has not been considered in the proper perspective and neither of the authorities below have appreciated the materials that were produced or afforded an opportunity to the assessee to produce further details if they were of the opinion that the same were required. This issue is thus remanded back to the file of the assessing officer for consideration anew after affording appropriate opportunity to the assessee to produce materials and substantiate its claim. Substantial Question of Law No.2 is allowed by way of remand. Claim of loss that has been considered by the assessing authority in detail and rejected for want of documentary evidence. The appellant also did not produce any material either before the Commissioner of Income Tax (Appeals) or the tribunal in this regard. In view of the concurrent finding of the authorities to the effect that the claim is wholly unsubstantiated, we do not find any reason to interfere with the conclusion of the tribunal confirming the rejection of the claim. Substantial question of law No.3 stands rejected.

Summary

Issues:
1. Deduction of bad debts written off in the books
2. Claim of long term capital loss on the sale of shares
3. Claim of business loss in respect of cancellation of hire purchase agreement

Issue 1: Deduction of Bad Debts:
The appellant, a company engaged in hire purchase and leasing, claimed a deduction of bad debts amounting to ?95,84,348. However, the assessing officer disallowed the claim due to lack of proof that the amounts were offered to tax in earlier years as required by section 36(2) of the Income Tax Act. The Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal upheld the disallowance. The High Court remanded the matter to the assessing officer to verify if the debts were written off in accordance with the law, citing relevant case laws like Southern Technologies vs. The Joint Commissioner of Income Tax and Vijaya Bank vs. Commissioner of Income Tax.

Issue 2: Long Term Capital Loss on Sale of Shares:
The appellant claimed a long term capital loss on the sale of shares in two companies, justifying the sale due to the companies being loss-making and unlisted. However, the claim was disallowed by the assessing officer and subsequent authorities for lack of substantiation. The High Court rejected the request to admit additional evidence and remanded the issue back to the assessing officer for a fresh consideration, emphasizing the burden on the appellant to provide evidence.

Issue 3: Business Loss from Cancellation of Hire Purchase Agreement:
The appellant claimed a business loss of ?1,91,24,000 from the cancellation of a hire purchase agreement. The assessing officer disallowed the claim due to lack of substantiation. The Commissioner of Income Tax (Appeal) and the tribunal upheld the disallowance, as the appellant failed to produce any material to support the claim. The High Court affirmed the rejection of the claim, as the appellant did not provide any evidence at any stage of appeal.

In conclusion, the High Court partly allowed the Tax Case (Appeal), remanding the first and second issues back to the assessing officer for fresh consideration, while rejecting the third issue due to lack of substantiation. No costs were awarded, and the miscellaneous petition was closed.