Co. should be engaged in money lending business isn’t a criterion to allow claim of bad debts: ITAT

Case Details: Pranava Electronics (P.) Ltd. v. DCIT - [2022] 140 taxmann.com 9 (Bangalore-Trib.)

Judiciary and Counsel Details

• • Chandra Poojari, Accountant Member & Smt. Beena Pillai, Judicial Member
  • K.R. Pradeep & Ms Girija, Advs. for the Appellant.
  • Priyadarshini Mishra, Addl. CIT for the Respondent.

Facts of the Case

The assessee-company was engaged in the money lending business since its inception from the financial year 2004-05 until the impugned the assessment year 2010-11.

The assessee advanced loan to various persons. A loan also advanced to Pie Education Ltd. at Rs. 4.03 crores which were written off in the books of account. The assessee claimed this amount as bad debt in terms of section 36(1)(vii).

The bad debt claim was disallowed by the lower authorities for the reason that this was not advanced in the ordinary course of money lending business of the assessee and also no income had gone into the computation of income under the head income from business’ as the assessee had not charged any interest on the said loan. The matter reached before the tribunal.

ITAT Held

The Tribunal held that this was admitted facts that the assessee was carrying on money lending business and had been taxed so under the head business for the last 9 years which had been overlooked by the authorities.

However, if the assessee was not in the money lending business it cannot lead to the conclusion that when money advanced by the assessee becomes bad, it cannot be written off. Even if the assessee advanced money without money lending business, if the advance becomes bad, it should be allowed as a bad debt in terms of section 36(1)(vii) read with section 36(2)(i).

For the purpose of the Income-tax Act, for grant of the claim of assessee as bad debt, holding the money lending business is an irrelevant consideration. The issue has to be looked into from the point of view of the assessee, whether the assessee has advanced money and it became bad debt and same was written off in the books of account as bad debt.

In the instant case, the assessee had advanced money in the ordinary course of carrying on the business of the assessee, and income earned from the money lending business was offered to tax from year to year. Due to circumstances beyond the control of the assessee, the assessee was not able to recognize interest income on the impugned advance made to Pie Education Ltd. Therefore, it has to be considered a business loss and was to be allowed.

List of Cases Referred to

• • Pranava Electronics (P.) Ltd. v. Dy. CIT [2021] 124 taxmann.com 242/278 Taxman 175 (Kar.) (para 2)
  • TRF Ltd. v. CIT [2010] 190 Taxman 391/323 ITR 397 (SC) (para 7)
  • CIT v. T. Veerabhadra Rao, K. Koteswara Rao & Co. [1976] 102 ITR 604 (A.P.) (para 7)
  • CIT v. T. Veerabhadra Rao [1985] 22 Taxman 45/155 ITR 152 (A.P.) (para 7)
  • P.C. Dharmalinga Mudaliar v. CIT [1985] 152 ITR 588 (Mad.) (para 7)
  • Narain Swadeshi Weaving Mills v. Commissions of Excess Profits Tax [1954] 26 ITR 765 (SC) (para 7)
  • Indore Malwa United Mills Ltd. v. State of Madhya Pradesh [1965] 55 ITR 736 (SC) (para 7)
  • Badridas Daga v. CIT [1958] 34 ITR 10 (SC) (para 7)
  • A.V. Thomas & Co. Ltd. v. CIT [1963] 48 ITR 67 (SC) (para 7)
  • All Grow Finance & Investment (P.) Ltd. v. CIT [2012] 20 taxmann.com 260/[2011] 388 ITR 496 (Delhi) (para 7)
  • Poysha Oxygen (P.) Ltd. v. Asstt. CIT [2008] 19 SOT 711 (Delhi) (TM) (para 7)
  • Mohan Meakin Ltd. v. CIT [2011] 11 taxmann.com 141/199 Taxman 314 (Mag.)/[2012] 348 ITR 109 (Delhi) (para 7)
  • CIT v. Vivek Engineering & Casting Ltd. [2017] 80 taxmann.com 125/[2016] 383 ITR 480 (Cal.) (para 7)
  • CIT v. Smt. Padma S. Bora [2015] 54 taxmann.com 319/229 Taxman 627 (Bom.) (para 7)
  • CIT v. Gillanders Arbuthnot & Co. Ltd. [1982] 9 Taxman 76/138 ITR 763 (Cal.) (para 7)
  • Pranava Electronics (P.) Ltd. v. Dy. CIT [IT Appeal No. 84 (Bang.) of 2019, dated 17-7-2019] (para 13).