2020 (1) TMI 625 - HC - Income Tax

Write off the loan and claim the same as bad debts - Assessee had advanced interest bearing loans to its subsidiary company who became loss making company - HELD THAT - Assessee had advanced loans to its subsidiary company. The loan was interest bearing. Assessee claimed that the subsidiary company became loss making company and the Assessee took a decision to write off the loan and claim the same as bad debts. The said claim has been denied by the Assessing Officer on two counts (i) that the Respondent- Assessee was not in the business of giving loans and, therefore, conditions of section 36(2) were not satisfied and (ii) that the claim of the Assessee of loan becoming bad debts was not genuine as the Assessee was knowing that the loan was not recoverable. The Commissioner of Income Tax (Appeals) confirmed the decision of the Assessing Officer, however, the Tribunal held in favour of the Respondent- Assessee holding that the claim of the Assessee was allowable. The decision of the Supreme Court in the case of S.A.Builders Ltd. v. Commissioner of Income Tax (Appeals), Chandigarh ( 2006 (12) TMI 82 - SUPREME COURT) holds the field on the issue of the assessee not being in the business of giving loans. The decision of the Madras High Court in the case of Commissioner of Income Tax v. Y.Ramakrishna Sons Ltd. ( 2009 (12) TMI 100 - MADRAS HIGH COURT ) relied upon by the Tribunal deals with genuineness of the claim of loan being a bad debt. In the decision decision of this Court in the case of Commissioner of Income-tax v. Star Chemicals (Bombay) (P) Ltd. ( 2008 (2) TMI 399 - BOMBAY HIGH COURT) and in the decision of the Supreme Court in the case of T.R.F. Ltd. v. Commissioner of Income-tax 2010 (2) TMI 211 - SUPREME COURT , it is laid down that after the amendment of 1 April 1989, it is not necessary for the Assessee to establish that the debt has, in fact, become irrecoverable and if the Assessee writes off the same as bad debts, it would serve the purpose.

Issues:
- Challenge to the order of the Income Tax Appellate Tribunal for the assessment year 2008-09.
- Claim of bad debts by the Assessee regarding loans advanced to subsidiary company.
- Interpretation of section 36(2) of the Income Tax Act, 1961.
- Genuineness of the claim of bad debts by the Assessee.
- Applicability of Supreme Court and High Court decisions in similar cases.

Analysis:
1. The appellant challenged the order of the Income Tax Appellate Tribunal for the assessment year 2008-09. The issue revolved around the Respondent-Assessee claiming bad debts after advancing loans to its subsidiary company, which had become loss-making. The Assessing Officer denied the claim citing that the Assessee was not in the business of giving loans and that the claim of bad debts was not genuine. The Commissioner of Income Tax (Appeals) upheld this decision, but the Tribunal ruled in favor of the Assessee, allowing the claim of bad debts.

2. The court referred to the Supreme Court decision in S.A. Builders Ltd. v. CIT (2007) and the Madras High Court decision in CIT v. Y. Ramakrishna & Sons Ltd. (2010) to address the issue of the Assessee not being in the business of giving loans and the genuineness of the bad debt claim. Additionally, the court cited the decision of the Bombay High Court in CIT v. Star Chemicals (Bombay) (P) Ltd. (2008) and the Supreme Court decision in T.R.F. Ltd. v. CIT (2010) to establish that post the amendment of 1 April 1989, it is not mandatory for the Assessee to prove the debt as irrecoverable, and writing it off as bad debts is sufficient.

3. Based on the above legal precedents, the court concluded that the issue raised in the appeal was already settled by previous judgments and did not give rise to any substantial question of law. Therefore, the court dismissed the appeal, upholding the decision of the Tribunal in favor of the Respondent-Assessee regarding the claim of bad debts on the loans advanced to the subsidiary company.

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