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TMI Blog2013 (8) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... On 11.01.2013, a Coordinate Bench of this Court has admitted the instant appeal on the following substantial question of law: "Whether, the assessee does not fulfill the conditions provided under Clause (i) of Sub-section (2) of Section 36 of the Income Tax Act, being not engaged in the regular business of money lending and accordingly, the judgment and order of the Tribunal, is substantially illegal?" The brief facts of the case are that the assessee is engaged in the money lending business. The assessee has deposited a sum of Rs.34.0 lacs in the form of fixed deposit with M/s City Cooperative Bank Limited; and Badla deposit of Rs.5 lacs with M/s. Century Consultants Ltd., Lucknow. Thus, the total amount was Rs.39 lacs in both the depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrecoverable and be treated as bad debt and how it can be treated as of a revenue nature contradistinction from capital nature. It is also the submission of the learned counsel that the assessee is not holding a money lending license. The interest income from bank deposits was never treated as "business income" in the earlier year, but the same was shown as "income from other sources". Lastly, he made a request to set aside the Tribunal's order and restored the order passed by the lower authorities. On the other hand, Sri Anand Prakash Sinha, learned counsel for the assessee has justified the impugned order passed by the Tribunal. He admits that the assessee was not registered under the Money Lending Act, though, the assessee is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts Limited, Lucknow. When the money was deposited with the banking companies, then the relationship of debitor and creditor was created. There is a loss to the assessee as both the companies have closed down their business and disappeared from town. Recovery of the amount in question is not possible. So, the assessee had written off the amount in the books of accounts as "bad debt". It may be mentioned that prior to April 1, 1989, in order to claim deduction under section 36 (1) (vii) of the Income Tax Act, 1961, it was necessary for the assessee to establish that the debt had become bad, but after April 1, 1989, for the debt to be classified as bad, the assessee had only to write it off as irrecoverable in its accounts. The 1989 amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the burden on the assessee to prove that the debt written off by him was indeed a bad debt as long as it was bona fide and based on commercial wisdom or expediency as per the ratio laid down in the case of the Director of Income Tax (International Taxation) vs. Oman International Bank [2003] 313 ITR 128 (Bom). The legal proceedings are not necessary for the recovery of the bad debt as per the ratio laid down in the case of CIT vs. Sri Ram Gupta (2008) 296 ITR 212 (Alld). Lastly, the Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT (2010) 323 ITR 397 (S.C.) has observed that : "After the amendment of section 36 (1) (vii) of the Income Tax Act, 1961 with effect from April 1, 1989, in order to obtain a deduction in relation to bad debt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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