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TMI Blog2025 (4) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... 133A of the Act was conducted in the hands of the assessee on 22-09-2016. 3. The assessee is a holding company of M/s Chandra Net Pvt Ltd (CNPL), wherein it held 80% of its paid up capital. The assessee had given loan of Rs. 37.07 crores to the above said company. The assessee had also given loan of Rs. 10.76 crores to another company named M/s Manekchand Pannachand Trading Investment Company P Ltd (MPTI). During the year under consideration, the assessee wrote off outstanding loans of above said companies aggregating to Rs. 47.83 crores as bad debts u/s 36(1)(vii) of the Act. 4. The AO took the view the write off of loans as bad debts is a colourable device/sham transaction adopted by the assessee to create loss with the purpose of setting off the same against the Long term capital gains earned by it. The reasoning given by the AO may be summarized as under:- (a) Shri Shripal Morakhia is a major shareholder of assessee company. His son in law, Shri Abhishek Javeri was found to be one of the directors of both the above said borrower companies. (b) During the course of survey operation, two assignment agreements dated 12-02-2015 were found. Under the first agreement, the outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Company and the money has been lent to both M/s CNPL and MTPI by the assessee in the ordinary course of its money lending business. The Ld.AR submitted that has received interest from both these companies in the earlier years and they were duly offered to tax. The details of interest received from these two companies have been tabulated as under by the assessee at age 111 of paper book:- 3. AHA has offered interest income from the aforesaid loans in its books as under: AY Interest from CNPL Interest from MPTPL 2008-09 - 12,20,219 2009-10 - 56,33,137 2010-11 - 77,70,000 2011-12 - 77,70,000 2012-13 - 1,24,65,960 2013-14 - 1,35,59,848 2014-15 - 1,05,59,556 2015-16 2,51,44,100 90,03,862 2016-17 1,24,84,996 37,74,222 Total 3,76,29,096 7,17,56,804 The share of Chandra net Pvt. Ltd. were sold during AY 2016-17, and no more subsidiarv company of Aha Holdings Pvt. Ltd. There is no dispute that the assessee has written off the outstanding balance of these companies as bad debts in the books of accounts. Hence there is no dispute that the conditions prescribed in sec.36(1)(vii) read with sec. 36(2) have been fulfilled by the assessee. The Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Madras High Court has held that the bad debts have to be allowed on the basis of facts available in each case. In our view, the facts would indicate that the interest received from the above said company has been subjected to tax. There is no material to show that the money was not lent to the above said company in the ordinary course of business. Hence, the claim cannot be rejected merely on the reason that the borrower company happened to be subsidiary company. In our view, this fact that the borrower company is a subsidiary company is a good ground to probe the matter further. However, we notice that the AO did not carry out any investigation to prove that the bad debt claim was bogus. We notice that the AO has examined the financials of M/s CNPL and expressed the view that the said company has started making profits and hence there was no necessity for the assessee to write it off as bad. The above said observation would show that the AO is assuming the role of the owner of the company to question the business wisdom, which is not permitted under the law. 8.3. The next reason cited by the AO is related to assignment agreements found during the course of survey operations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as come to such a conclusion only on presumptions and surmises. 8.5. In our view, the above said observations of the AO are not required to be considered, since the claim of bad debts is allowed u/s 36(1)(vii) of the Act, wherein the requirement is that the debt should be written off as bad in the books of accounts and further the conditions prescribed in sec.36(2) should be fulfilled, i.e., there was no necessity for the assessee to establish that the debt has really become bad. This legal position has been explained by Hon'ble Bombay High Court in the case of Director of Income tax (International Taxation) vs. Oman International Bank SAOG (2009)(184 Taxman 314), wherein it was held as under:- "A comparison between the provisions of section 36(1)(vii), as it stood before and after its amendment with effect from 1-4-1989, would show that prior to the amendment the assessee was required to establish that the debt in question has become bad in the previous year. Subsequent to the amendment to the language of section, it is sufficient if the bad debt or part thereof is written off as irrecoverable in the accounts of the assessee based on commercial expediency. If one applies the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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