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TMI Blog2010 (4) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... e's claim of bad debts of ₹ 242.08 lakhs being principal amount of hire purchase/lease finance u/s.36(1)(vii) of the I.T.Act, 1961, without appreciating that the pre-condition laid down in section 36(2)(i) of the I.T.Act, 1961 is not satisfied, as such, debt has not been taken into account in computing the income of the assessee and that the assessee is neither engaged in the business banking nor money lending. 2. On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in allowing the assessee's claim of bad debt of ₹ 242.08 lakhs mentioned above, without appreciating the decision of the Hon'ble Madras High Court in the case of South India Surgical Co. 287 ITR 62,wherein, it was held that mere unilat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced hereunder:- "Principal Hire Purchase amount ₹ 36,47,164/- Add: Income offered for taxation in earlier years ₹ 19,18,408/- ₹ 55,65,572/- Less: Income reversed Nil NPA provision made 5,56,557/- ₹ 5,56,557/- Amount written off in the previous year under consideration: ₹ 50,09,015/-:" He examined in detail the assessee's claim in regard to write off of the principal Hire purchase amount given to parties. He noted that in view of the provisions of Section 36(1)(vii) and various judicial pronouncements, two basic requirements for the write off of any amount of bad debts were as under:- "i) The debts should be a trade debt and ii) The same should have been offered for taxation in earlier yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,86,64,737 Less: Provision made for NPA ₹ 3,95,47,866 ₹ 6,82,12,603 Bad debts allowed ₹ 2,34,05,948" 3. Ld CIT (A) following the decision of the Hon'ble Bombay High Court in the case of Omaprakash B Salecha dated 12.3.2008 and also the decision of the ITAT Delhi in the case of Tulip Star Hotel Ltd v ACIT, 17 SOT 108 (Del) deleted the addition. 4. Ld D.R. submitted that the basic issue is whether the assessee is in the business of banking or money lending so as to be entitled for deduction of the principal amount in regard to hire purchase and leasing transaction written off or not. He referred to page 4 of ld CIT (A)'s order, wherein, the submissions of the assessee are contained and pointed out that though the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d if the same is to be considered as business loss. 5. In the alternative, he further referred to the decision of ITAT (SB) in the case of Gujrat Gas Financial Service (supra) and pointed out that since income from money lending activity was less than 50%, it was held that principal activity of the assessee was not money lending. He referred to page 4 of the assessment order to demonstrate that the income from leasing and hire purchase was never more than 50% and in the year under consideration, the assessee was not even engaged in the said activity. The income from these two activities was very minuscule as compared to turnover of the assessee. Thus, in sum and substance, he submitted that mere classification of the assessee as loan compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Company. The Assessing Officer has himself allowed the interest part of the hire purchase and leasing finance as bad debts and the only dispute is regarding principal amount given in hire purchase and lease finance. In the case of Tulip Star Hotel Ltd (supra), it was held that money lending activity is part of Non Banking Finance Business. Ld D.R. submitted that this decision is applicable with reference to inter corporate deposit. However, we find that the Tribunal has, inter alia, noted as under:- "The assessee is a non-banking finance company since its incorporation in 1987 and mainly engaged in providing funds and non-fund based financial services. The assessee also conducts money changing business as full-fledged money changer. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our opinion, is not applicable to the facts of the case. 9. In the present case, we have to examine the issue in the light of the fact that the assessee is a non banking finance company. The composition of income cannot be a deciding factory in such circumstances. Under the provisions of Section 36(1)(vii), the only requirement is that the amount written off should represent money lending in the ordinary course of business of banking or money lending, which is fulfilled as the assessee was a NBFC and carried on fund based activities for earning interest. Further, in the case of Gujrat Gas Financial Service (supra), the principal object was distribution of gas. The ITAT Delhi in the case of DCIT v. Srei International Finance Ltd., 10 S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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