2019 (1) TMI 752 - AT - Income Tax

Loss on foreclosure of loans - Whether equivalent to write off of an asset which is capital in nature and not allowable u/s. 37(1) since it is not a Revenue write off? - Held that - As decided in assessee s own case 2015 (11) TMI 1670 - ITAT DELHI admittedly the assessee is a non banking fianc company and engaged in the business of money lending and therefore the amount of debt represents the money lent in the ordinary course of business of money lending. Further according to section 36(1)(vii) of the act any bad debt or part of the bad debt if written off in the books of accounts as irrecoverable same shall be allowed to the assessee as deduction. It is admittedly written off in the book of accounts of the assessee as loss on foreclosure of loan assets . Thus the assessee satisfies all the conditions of allowabaility of this sum as deduction u/s 36(1) (vii) rws 36(2). As the sum is written off in the books of accounts by writing of the loan amount of the borrower on negotiation cannot be called a future or probable loss but ascertained and accrued loss in the business of financing. In case of CIT V CITI CORP Maruti Finance Limited 2010 (11) TMI 802 - Delhi High Court has held that even loss on repossessed vehicle sold is also allowable to the assessee u/s 36(1) r.w.s 36 (2) of the act. Honourable Delhi High court also held that such deduction was also covered in favour of the assessee. - Decided in favour of assessee. Write off of recoverable - Held that - In order to claim the aforesaid amount either as loss u/s. 28 or as bad debt u/s. 36(1)(vii) read with section 36(2) the onus was on the assessee to produce the party-wise details alongwith their complete addresses PANs TANs so as to enable the Assessing Officer to make verification as to the correct nature of amount claimed by the assessee. It is also made clear that once the assessee proceeds to set off the receivables (TDS) from the total tax liability the nature of such receivables no more remains in the nature of bad debts/receivables. On perusal of year-wise details of irrecoverable TDS we find that such irrecoverable receivables are shown to have been pending since assessment years 1997-98 to 2007-08 but the assessee has not been able to furnish Form 16A from the parties who deducted TDS nor could he prove that any efforts were made by the assessee to recover the impugned of TDS amount so as to claim its credit. The amount of TDS has to be deposited in the government treasury by the deductors on behalf of the deductee for which the Income-tax law provides procedure to furnish TDS certificate by the deductee for claiming its credit which the assessee failed to do here. Once the TDS was deducted by the deductors and the assessee was not in possession of TDS certificates he should have made a request to verify the same from the parties who deducted the TDS but the assessee has also failed to do so as he did not furnish even the details of the deductors before the Assessing Officer. In these peculiar facts of the case on hand the decision relied by the assessee are not found applicable due to disparity of facts. We accordingly conclude that the ld. CIT(A) was not justified in giving relief to the assessee u/s. 37. Accordingly ground No. 2 of appeal deserves to be allowed. Bad debts written off - Held that - Legal position that emerges is that in the case of a NBFC so long as the debt represents money lent in the ordinary course of money lending business; interest has been consistently assessed as income from money lending business; the debt has been written off as bad debts by the Appellant in its books of accounts the claim of the appellant should be allowed as deduction under section 36(1)(vii) read with section 36(2). Accordingly the addition made is deleted and the grounds of appeal is allowed.

Summary

Issues Involved:
1. Deletion of disallowance on account of loss on foreclosure of loan accounts.
2. Deletion of disallowance of claim of TDS recoverable written off.
3. Deletion of disallowance on account of bad debts written off.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance on Account of Loss on Foreclosure of Loan Accounts:
The Revenue challenged the deletion of the disallowance of ?95,80,354/- made by the Assessing Officer (AO) on account of loss on foreclosure of loan accounts. The AO viewed the foreclosure loss as a capital loss, not allowable under Section 37(1) of the Income Tax Act, as it was not a business loss arising in the ordinary course of business. However, the CIT(A) allowed the appeal, citing that the foreclosure losses were written off as irrecoverable in the books of accounts, thus satisfying the conditions under Section 36(1)(vii) and 36(2). The ITAT upheld the CIT(A)'s decision, referencing a previous judgment in the assessee’s case for AY 2009-10, which allowed similar claims under Section 36(1)(vii) as bad debts written off in the ordinary course of business.

2. Deletion of Disallowance of Claim of TDS Recoverable Written Off:
The Revenue contested the deletion of the disallowance of ?62,47,393/- claimed as TDS recoverable written off. The AO disallowed the claim, arguing that the amount was not a business loss and lacked detailed party-wise information. The CIT(A) allowed the claim, but the ITAT overturned this decision, noting that the assessee failed to furnish necessary details such as party-wise ledger accounts, addresses, PANs, and TANs. Additionally, the ITAT pointed out that the assessee did not provide evidence of efforts made to recover the TDS, nor did it substantiate the claim under Section 28 or 36(1)(vii). Consequently, the ITAT allowed the Revenue’s appeal on this issue.

3. Deletion of Disallowance on Account of Bad Debts Written Off:
The AO disallowed the claim of ?1,66,88,812/- as bad debts written off, citing the assessee’s failure to provide detailed information and ledger accounts. The CIT(A) reversed this decision, noting that the bad debts were written off in the books as per the amended provisions and supported by various case laws. The ITAT upheld the CIT(A)'s decision, emphasizing that the bad debts written off were in the ordinary course of the money-lending business, and the interest had been consistently assessed as income from such business. The ITAT found no contrary material from the Revenue to dispute the CIT(A)’s findings and thus dismissed the Revenue’s appeal on this issue.

Conclusion:
The ITAT's judgment resulted in a partial allowance of the Revenue's appeal. The deletion of disallowance on account of loss on foreclosure of loan accounts and bad debts written off was upheld, while the deletion of disallowance of TDS recoverable written off was overturned. The decision emphasized compliance with specific provisions of the Income Tax Act and the necessity of detailed documentation to substantiate claims.