2021 (12) TMI 1180 - AT - Income Tax

Disallowance with respect to loan advanced by assessee written off and claimed as business loss - CIT(A), who confirmed the disallowance holding that same is neither allowable under section 37(1) or under section 36(1)(vii) or under section 36(2) - HELD THAT - We find that for assessment year 2014-15, the assessee has earned no interest from private parties and the assessee only earned the interest from bank FDRs. Therefore, if the statement of the partner is looked into with respect to the activities of the assessee for assessment year 2014-15, the facts are stated correctly. However, the partner was fully aware about the loan given and the amount repaid by the borrower. This is demonstrated from answers to questions - such as ledger account of the borrower showing advances of ₹ 10 crores, proof of earning interest income, repayment of sum , outstanding remaining of ₹ 2 Crores, such sum being written off in the books of accounts, object of the partnership deed and past assessment records of the assessee, merely using the statement of the partner against the assessee for disallowance of the above loss is not justified. Merely because the borrower is a related party and in which the partners of the assessee firm are interest, cannot be the reason for disallowance of the above loss. As the assessee has satisfied all the conditions of section 36(1)(vii) read with section 36(2) of the Act, the claim of the assessee is allowable. In the result, we reverse the orders of the lower authorities and direct the assessing officer to delete the above disallowance. Erroneous set off of business loss against the capital gains rather than against the business income of the year - As per the assessment order, the long term capital gain of the assessee is ₹ 5,48,65,125/-. However, as per the income-tax computation form, the learned assessing officer has taken long term capital gain of ₹ 4,56,01,325/- . Thus, the total income remains same at ₹ 6,56,01,325/- but the figure of the long term capital gain has been changed by the assessing officer in the income-tax computation form. Thus, we direct the learned assessing officer to correctly compute the income-tax computation by taking the long term capital gain at ₹ 5,48,65,125/- only. Accordingly, ground 2 of the appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of loan advanced by assessee to a company and claimed as business loss.
2. Computation of tax payable by the assessee.

Issue 1 - Disallowance of Loan:
The appeal was filed against the order confirming disallowance of ?2 crores for a loan advanced by the assessee to a company, written off, and claimed as a business loss. The assessing officer noted that the borrower company became sick in 1998, but loans were given starting from 2001. The assessing officer found no business exigency in granting the loan, as the borrower's directors were partners of the assessee firm. The assessing officer disallowed the amount as bad debt, citing lack of interest income, and no previous credit of the sum in the assessee's books. The CIT(A) upheld the disallowance, stating it was not allowable under relevant sections. The authorized representative argued that the loan was given in the ordinary course of business, supported by the partnership deed and past financial records. The Tribunal found the loan was allowable as a bad debt under section 36(2) since the assessee was engaged in the business of financing, had shown interest income, and met the conditions for deduction. The disallowance was reversed, and the assessing officer was directed to delete the ?2 crores disallowance.

Issue 2 - Computation of Tax:
The second issue related to the set off of business loss against capital gains instead of business income. The assessing officer incorrectly computed the long-term capital gain, leading to an error in the income tax computation form. The Tribunal directed the officer to correct the computation by considering the long-term capital gain at ?5,48,65,125, aligning it with the correct figure. Consequently, the assessee's appeal on this ground was allowed.

In conclusion, the Tribunal allowed the appeal filed by the assessee for the assessment year 2013-14, reversing the disallowance of the loan and correcting the computation of tax on capital gains.