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2015 (10) TMI 2370 - ITAT KOLKATA

2015 (10) TMI 2370 - ITAT KOLKATA - TMI - Deduction towards bad debts claimed - CIT(A) allowed the claim - whether the principal amount of a term loan, given by the assessee as a NBFC, to be written off as bad debt when the said amount is in the nature of capital of the assessee? - Held that:- The assesseeís primary business is only money lending through hire purchase scheme and hence the instalments receivable becomes the stock in trade of the assessee and all these monies were advanced during .....

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peal of the revenue arises out of the order of the Learned CITA in Appeal No. 136/CIT(A)-I/Wd-1(2)/05-06 dated 19.05.2006 passed against the order of assessment for the Asst Year 2003-04 framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. Shri.Sanjay Mukherjee, JCIT, the Learned CIT DR argued on behalf of the revenue and Shri. P.K.Himmatsinghka, Advocate, the Learned AR argued on behalf of the assessee. 3. The only issue to be decided in this .....

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under hire purchase scheme to Poddar & Associates ; Chandra Sekhar Upadhyay and Shri.Swapan Kanti Dey, among others, who defaulted in payment of instalments. The assessee after taking all reasonable steps for recovery of the dues treated the recoverability of the dues from the aforesaid parties as doubtful to the tune of ₹ 11,08,326/- comprising of Poddar & Associates (Rs. 9,69,175/-) ; Shri.Swapan Kanti Dey (Rs. 1,02,776/-) and Shri. Chandra Sekhar Upadhyay (Rs. 36,375/-) and acc .....

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Act and moreover, the principal amount of the instalment was never offered as income by the assessee and accordingly the same even if written off is not eligible for deduction as per section 36(1)(vii) read with section 36(2) of the Act. On first appeal, the disallowance was deleted by the Learned CITA by stating that as the assessee is engaged in the business of granting loans, the condition that the debt written off should have been taken into account in computing its income, which the Learne .....

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l amount of a term loan, given by the assessee as a NBFC, to be written off as bad debt when the said amount is in the nature of capital of the assessee. 2. Whether the Ld. CIT(A) is justified in allowing the principal amount of term debt to be written off, debited to P/L A/c., as well claimed as an allowable expense under section 36(1)(vii) read with section 36(2), when the said amount is never offered by the assessee for taxation as his income. 5. The Learned DR argued that the assessee had ad .....

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he Act. Since no income is offered to tax for the principal portion, no deduction could be granted for the secured loans of the assessee. In response to this, the Learned AR argued that the entire instalments recoverable (instalments mean principal and interest) have been duly written off in the books as irrecoverable and credited to the concerned parties account. Moreover, the assessee is engaged in the business of money lending under hire purchase scheme and this is evident from the fact of sh .....

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Act for cheque bouncing case when the cheque issued by party for one time settlement figure of ₹ 5,74,000/- also got bounced and status of court case of one of the parties M/s Poddar & Associates . He further argued that the concerned party had fled away with the equipment given on hire purchase and he could not be traced even for execution of the court proceedings and the police had reported that the court summons could not be served as the summonee could not be found in the given add .....

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e parties M/s Poddar & Associates even though it is not required for an assessee to establish that the debt had become bad after the amendment in section 36(1)(vii) of the act with effect from 1.4.1989. It is also found that the assessment year under appeal before us is Asst Year 2003-04 and whereas the court proceedings in respect of cheque bouncing case stated by the Learned AR as supra pertain to the period in 2005 & 2006. However, the assessee had already written off the debts due fr .....

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three parties as irrecoverable in its books of accounts in Asst Year 2003-04 :- Poddar & Associates , 7, Tarachand Dutta Street, R.N., 4h, 4th Floor, Kolkata - 700073 9,69,175 Chandra Sekhar Upadhyay, Laskar Halt, Madhyapara P.O. , Tiljala, Kolkata - 700039 36,375 Swapan Kanti Dey, Sreemanto Market, No.319, AT Road, Guwahati, Assam - 781001 1,02,776 11,08,326 Reliance in this regard is placed on the following decisions :- 326 ITR 315 (Mad) - CIT vs Y. Ramakrishna & Sons Ltd Held, dismiss .....

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for financing the subsidiary company. The income received by the assessee from the subsidiary company by way of interest was subjected to tax and the advance made by the assessee to that company was also subjected to tax. At the time of writing off the debt, the subsidiary company had accumulated huge losses. The assessee also suffered a loss while selling the shares of the subsidiary company which resulted in the subsidiary company ceasing to be the subsidiary of the assessee. Therefore, in the .....

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ial expediency as well. Both the Commissioner (Appeals) as well as the Tribunal had considered the materials on record and came to the conclusion that the transactions involved were true and genuine. They had also held that the advances had been made during the course of the business and they had become irrecoverable as bad debts and hence the assessee was entitled to the benefit under section 36(1)(vii). The question as to whether a debt had become bad or not was a pure question of fact and, th .....

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ebt, in fact, has become irrecoverable: it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The Supreme Court accordingly remanded the matter to the Assessing Officer to examine, solely to the extent of write off, whether the debt or part thereof was written off in the accounts of the assessee. (2013) 36 taxmann.com 537 (Allahabad HC) CIT vs Smt.Sushila Mallick - To treat a debt as a bad debt had to be a commercial or business decision of the assessee ba .....

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sessee 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. [Para 10] In the instant case, the assessee has written off bad debt when it was felt that the amount is not recoverable. The satisfaction of the assessee is sufficient for claiming write off the bad debt. Moreover, both the companies have disappeared from Lucknow without making any payment. [Para 13] In the light of the above discussion and by consider .....

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ion precedent of the satisfaction of the AO in writing off a bad debt, which used to lead to enormous litigations. The amendment provisions provide that a claim of bad debt will be allowed in the year in which such bad debt has been written off as irrecoverable in the accounts of the assessee for the previous year [para 30]. In pre-amended provision the assessee was required to establish that the debt in question has become bad in the previous year. In the post-amended period it is sufficient if .....

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ing the issue of deductibility of bad debts under section 36(1)(vii). The amendment decided the year in which the deduction has to be allowed, as the year in which the assessee has written off the debt as bad debt in the books of account. The amendment has also done away with the requirement of establishing that the debt has become bad. This is clear from the circular of the Board where it is stated that the amendment has been brought to eliminate the disputes in the matter of determining the ye .....

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the amended law that the deduction shall be allowed in the year in which the debt has been written off as irrecoverable. It is very important to note that the earlier expression any debt, or part thereof, which is established to have become a bad debt in the previous year has been conspicuously omitted by the amendment and substituted by the expression written off as irrecoverable . The words of the law are clear and the intent and purpose of the amendment are manifest. The earlier rule of esta .....

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