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TMI Blog2021 (11) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... f the financial condition of MCCL had provided for total outstanding of Rs. 4,50,73,952/- (Principal amount of deposit of Rs. 4,35,00,000/-) and interest accrued upto 31st March, 2001 of Rs. 15,73,952/- to be written off. According to the Assessing Officer there was no logical explanation nor any basis for waiving of accrued interest and the principle amount lent was not used for business purpose and respondent was also not in the business of lending money and therefore the claim for deduction under Section 37 of the Act and deduction of written off under Section 36 (1) (vii) cannot be allowed. 3. Aggrieved by this order, respondent filed an appeal before the Commissioner of Income Tax (Appeals) (CIT) (A). By an order dated 16th December, 2010 CIT (A) upheld the decision of the Assessing Officer. Impugning this order of CIT (A), respondent filed an appeal before the Income Tax Appellate Tribunal (ITAT). The ITAT by an order dated 30th June, 2016 allowed the appeal relying on the decision of this court in the case of The Commissioner of Income Tax-V, Pune vs. Pudumjee Pulp & Paper Mills Limited ITA No.1590 of 2013 dated 5th August, 2015. The ITAT set aside the order of CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or money lending and therefore the principle amount of deposit/advances to MCCL could not be claimed as deduction under Section 36 (1) (vii) of the Act on account of condition placed in condition 36 (2) of the Act. Mr. Suresh Kumar also submitted that the deposit is more in the nature of investment and therefore its non-recovery at best can be treated as capital loss. 6. Per contra, Mr. Shah submitted that the amount of Rs. 4,35,00,000/- written off in the books of accounts as not recoverable be allowed as deduction as a bad debt. Mr. Shah pointed out that respondent fulfills the requirements of Section 36 (1) (vii) read with Section 36 (2) (1) of the Act. Mr. Shah submitted that amount has been written off as irrecoverable in the books of accounts and this is also confirmed by the fact that the interest income for Assessment Year 2001-02 of Rs. 15,73,952/- was offered and assessed to tax as part of business income and therefore, it was to be understood that the impugned deposits/advances made to MCCL were in the ordinary course of business. 7. Factually, it is not disputed that respondent had made deposits/ advances with MCCL in the previous year 2000-01, corresponding to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that the activity of the Respondent-Assessee is of carrying on manufacturing and sale of paper. Consequently, the Respondent-Assessee cannot be said to be engaged in the activity of the money lending or business of banking Consequently, deduction of bad debts is hit by Section 36(2)(i) of the Act. Thus, the impugned order calls for interference. 8. Mr. Murlidahran, learned Counsel appearing for the Respondent- Assessee points out that the issue arising in the present facts is covered in favour of the Respondent-Assessee by the decision of this Court in CIT v/s. Shreyas S. Morakhia. It is further submitted that the Respondent- Assessee is entitled to the benefit of Section 36(2)(i) of the Act - on the ground that the interest income was offered to tax earlier and that the Assessee was engaged in the business of lending money. In the above view, it is submitted that the order of the Tribunal calls for no interference. 9. The CIT(A) as well the Tribunal have considered Sections 36(1) (vii) and 36 (2)(i) of the Act which for the purpose of convenience are reproduced hereunder and read thus: "Section 36 : Section (1) The deductions provided for in the following c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banking or money-lending which is carried on by the assessee. Therefore, even if one of the two conditions of Section 36(2) (i) of the Act is satisfied, then bad debts claimed under Section 36(1)(vii) of the Act has to be allowed. 12. So far as first part of Section 36(2)(i) of the Act is concerned, i.e. (a) above, we find that the Respondent-Assesee had during the earlier Assessment Years offered to tax an amount of Rs. 42.65 lakhs received as interest on the deposit made with M/s. GSB Capital Market Ltd. The Appellant had since Assessment Year 1998-99 claimed an amount of Rs. 49.82 lakhs as doubtful debts from M/s. GSB Capital Market Ltd. This consisted of the aggregate of principal and interest payable by M/s. GSB Capital Market Ltd. It was in the subject Assessment Year that a settlement was arrived at between the parties and the Respondent- Assessee received Rs. 15 lakhs from M/s. GSB Capital Market Ltd. and the balance amount of Rs. 34.82 lakhs being non-recoverable was being claimed as bad debts by writing off the same in its books of account. It would thus be noticed the amount of Rs. 34.82 lakhs which constitutes partly the principal amount of the inter-corporate depos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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