2017 (1) TMI 1162 - HC - Income Tax

Addition made on account of bad debt written off - Held that - It cannot be said that the finding recorded by the learned CIT(A) and the learned Tribunal that the assessee was in the regular business of money lending is either perverse or contrary to the evidence on record. If that be so, considering Section 36(2) of the Income Tax Act, learned CIT(A) as well as learned Tribunal have rightly deleted the addition made on behalf of Bad Debt Written off - Decided in favour of assessee Addition of interest expenditure not incurred for the business purpose - Held that - The assessee was already available at his disposal interest free funds to the tune of ₹ 5,29,93,800/out of which, the assessee had only utilized interest bearing funds in the investments in question amounting to ₹ 3,30,01,822/, the learned CIT(A) had rightly reduced the interest disallowance for the period between 27.02.2009 to 31.03.2009 at ₹ 3,47,197/. The aforesaid finding recorded by the learned CIT(A) has gone unrebutted as observed by the learned Tribunal. Thus it cannot be said that the learned Tribunal has committed any error in deleting interest expenditure - Decided in favour of assessee

Summary

Issues:
1. Whether the Appellate Tribunal erred in deleting the addition made on account of bad debt written off?
2. Whether the Appellate Tribunal erred in deleting the interest expenditure not incurred for the business purpose?

Analysis:

Issue 1: Bad Debt Written Off
The appellant filed its return of income for AY 2009-10 declaring total income. The Assessing Officer framed a scrutiny assessment, making additions including bad debt written off. The CIT(A) deleted the additions, and the Revenue appealed to the Tribunal. The Tribunal confirmed the CIT(A)'s decision. The High Court found that the assessee was in the regular business of loan and advance, earning interest from financial services. The Court agreed with the CIT(A) and Tribunal that the deletion of bad debt written off was justified under Section 36(2) of the Income Tax Act. The Court dismissed the appeal on this issue.

Issue 2: Interest Expenditure
The Assessing Officer disallowed interest under Section 36(1)(iii) of the IT Act, citing a mismatch between interest-free funds and investments. The CIT(A) disagreed, stating that interest was charged on advances and deposits were for business purposes. The Tribunal upheld the CIT(A)'s decision. The Court noted that the CIT(A) correctly reduced the interest disallowance, considering the utilization of interest-bearing funds for investments. The Court agreed with the Tribunal's decision to delete the interest expenditure not incurred for business purposes. Consequently, the Court dismissed the appeal on this issue.

In conclusion, the High Court upheld the decisions of the CIT(A) and the Tribunal, dismissing the Revenue's appeal on both issues of bad debt written off and interest expenditure not incurred for business purposes.