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TMI Blog2017 (4) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial Company (NBFC), in its computation of return of income claimed deduction of debt written off Rs. 3,41,87,163/-. On being asked by the AO it was explained that since the assessee is a NBFC company engaged in the business of granting loans and advances and that the assessee had granted loan to a party named M/s Dhanani International Ltd., almost 10 years back and interest was charged on the said loan amount. Subsequently, it was found that the said party was not regular in paying interest and later on, the debt became bad debt and, therefore, it was categorized as Non-Performing Asset. It was brought to the knowledge of the AO that since the loan given to M/s. Dhanani International Ltd. became bad consequently the debt and the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans. The assessing Officer has rejected the claim of write off on the ground that it was not sundry debtor and interest was not being accounted for past several years. Allowance for write off of a bad debt is governed by provision of section 36(1 )(vii) read with section 36(2). Clause (i) of sub-section (2) of section 36 states that no such deduction shall be allowed, unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. So far as interest component o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of the Act. On a plain reading of the provision of section 36(1)(vii) along with section 36(2)(i) of the Act it is clear that there are two categories of bad debts in respect of which deduction is allowable viz., (i) debt which has been assessed as income in the previous year or any preceding previous year which has now become irrecoverable and written off in the books of account and (ii) money lent in the ordinary course of business of banking or money lending which is carried on by the assessee and which has become irrecoverable and has been written off in the books of account. We further note that the assessee a NBFC has lent and advanced money amounting to Rs. 2,07,58,000/- in the ordinary course of its business. The assessee has cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Ld. CIT(A) and, therefore, we dismiss this ground of appeal preferred by the revenue. 6. Ground No. 2 reads as under: "2. That on the facts and circumstances of the case, the CIT(A) erred in holding that if net of interest received and interest paid is positive figure, no part of interest can be disallowed under rule 8D(2)(ii) as attributable to earning tax free dividend, ignoring that fact that the provisions of rule 8D(2)(ii) is restricted to the expense on account of interest attributable to the investment from which tax free income was earned." 7. The main grievance of the revenue is that the Ld. CIT(A) ignored the fact that the provisions of Rule 8D(2)(ii) is restricted to the expenses on account of interest attributab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an appeal before the Ld. CIT(A) who was pleased to allow the claim of the assessee and deleted the disallowance of Rs. 3,91,97,029/-. Aggrieved by the said decision of Ld. CIT(A), the revenue is now in appeal before us. 8. We have heard rival submissions and gone through facts and circumstances of the case. We note that during the year the assessee has paid interest of Rs. 6,68,38,624/- on the loans obtained and received interest of Rs. 7,26,62,380/- on loans advanced in the course of business. In the P&L Account net interest is reflected showing a positive interest income of Rs. 58,23,756/-. In the year under consideration apart from the interest income the assessee has earned dividend of Rs. 5,20,74,730/-. The assessee has disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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