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2016 (6) TMI 258 - AT - Income TaxDisallowance made on account of loss on sale of repossessed assets being capital in nature - Held that - Loss is on account of bad debts. The loss on account of sale of repossessed assets is nothing but a write off of bad debts. The nomenclature cannot change the real character of the transaction. The appellant debited the loss to revenue account as it is incidental to business. Under no stretch of imagination, this loss can be considered as capital in nature as done by the Assessing Officer. On the basis of the aforesaid decisions, it can be concluded that loss on sale of repossessed assets can be considered for deduction as business loss. This is particularly so as there is no bar in claiming a loss as a business loss, if the same is incidental to carrying on of a business. See Commissioner of Income Tax Versus Citicorp Maruti Finance Ltd. 2010 (11) TMI 802 - Delhi High Court and Harshad J Choksi vs. CIT, Bombay 2012 (8) TMI 710 - BOMBAY HIGH COURT - Decided in favour of assessee
Issues Involved:
1. Deletion of disallowance of ?1,12,38,236/- on account of loss on sale of repossessed assets being capital in nature. Issue 1: Deletion of Disallowance of ?1,12,38,236/- on Account of Loss on Sale of Repossessed Assets Being Capital in Nature The Revenue appealed against the order of the CIT(A) that allowed the assessee's claim of ?1,12,38,236/- as a business loss on the sale of repossessed assets. The Assessing Officer (AO) had previously disallowed this claim, considering it a capital loss and not an allowable expenditure. The assessee, a non-banking finance company (NBFC), filed its return of income showing a total loss of ?8,61,40,026/-. Upon assessment, the AO determined the total income at ?34,47,210/- after disallowing the loss on sale of repossessed assets. The CIT(A) later allowed the assessee's appeal, treating the loss as a business expense. During the proceedings before the Tribunal, the Department's Representative (DR) argued that the loss was capital in nature and thus rightly disallowed by the AO. The Assessee's Counsel, however, contended that the issue was covered by several precedents, including decisions from the ITAT and High Courts, which supported the treatment of such losses as business expenses. The Tribunal reviewed the CIT(A)'s detailed discussion and findings, which referenced several judgments, notably: - Harshad J Choksi vs. CIT, Bombay High Court: This case established that even if a debt is not deductible as a bad debt under Section 36(1)(vii), it could still be considered a business loss under Section 28 of the Income Tax Act. - CIT vs. Citicorp Maruti Finance Ltd., Delhi High Court: This case involved similar facts where the assessee, engaged in vehicle financing, repossessed and sold vehicles, claiming the resultant loss as a bad debt. The court upheld that such losses could be treated as business expenses under Section 36(1)(vii) read with Section 36(2). The Tribunal noted that the expression "profits and gains of business or profession" should be understood in its ordinary commercial meaning, which includes deducting expenses and losses incurred in carrying on the business. The loss on sale of repossessed assets, being incidental to the business of money lending and vehicle financing, was deemed a business expense rather than a capital loss. In conclusion, the Tribunal upheld the CIT(A)'s order, affirming that the assessee was entitled to the deduction of ?1,12,38,236/- as a business loss. The appeal filed by the Revenue was dismissed. Order Pronounced: The appeal filed by the Revenue stands dismissed.
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