All Grow Finance & Investment (P) Ltd v. CIT

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The Tax Publishers2012 TaxPub(DT) 0376 (Del-HC) : (2011) 338 ITR 0496 : (2012) 249 CTR 0361 : (2012) 066 DTR 0131 Income Tax Act, 1961 --Business deduction under section 36(1)(vii)/36(2)--Bad debts Conditions precedent satisfied--The assessee was a non-banking financial company. It deriveds its income from interest on money lent to various parties as a part of its money-lending business. On 16-4-1999, it tent. Rs. 60 lakhs to M/s. B. After deducting opening credit balance of Rs. 3.10 lakhs, a sum of Rs. 56.90 lakhs became due to be recovered. However, this amount could not be recovered even after several requests, reminders and legal notice. Ultimately, Rs. 28.45 lakhs (50 per cent. of amount due) was written off as irrecverable in assessment year 2000-01. The balance amount was also written off as irrecoverable in the year 2004-05 and the same stands allowed in the assessment made under section 143(1). Similarly, Rs. 6,50,000 (being 50 per cent of the amount due) was written off in the case of M/s. G in the relevant assessment year. The AO disallowed the assessee's claim for bad debts holding that under section 36(2), to write off any bad debt the same has to be included in the income for earlier years which was not done in the case of the assessee. Both the lower appellate authorities also disallowed assessee's claim. *Held:* As the amount was lent during the ordinary course of the money lending business and included in income of the assessee in earlier years the deduction under section 36(2) read with section 36(1)(vii) was allowable. The only condition laid down in the second part of sub-section (2) of section 36 is that the amount should be advanced in the ordinary course of business which, by itself, proves its revenue nature and no further conditions are required to be satisfied which are only applicable with regard to the debt qualifying as bad debt in the first part of sub-section (2). [Para 14] For the aforesaid reasons, court is in agreement with the submissions of the appellant-assessee as regards the interpretation of sub-section (2)(i) of section 36 and that being so, authorities below are not justified in holding that the amount of Rs. 34,95,000 was not allowable as bad debt under section 36(l)(vii) read with section 36(2). [Para 14] Income Tax Act, 1961 Section 36(1)(vii) Income Tax Act, 1961 Section 36(2) IN THE DELHI HIGH COURT A.K. SIKRI & M.L. MEHTA JJ. All Grow Finance & Investment (P) Ltd. v. CIT ITA No. 682 of 2011 3 June, 2011. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0376 (Del-HC) : (2011) 338 ITR 0496 : (2012) 249 CTR 0361 : (2012) 066 DTR 0131

Income Tax Act, 1961

--Business deduction under section 36(1)(vii)/36(2)--Bad debts Conditions precedent satisfied--The assessee was a non-banking financial company. It deriveds its income from interest on money lent to various parties as a part of its money-lending business. On 16-4-1999, it tent. Rs. 60 lakhs to M/s. B. After deducting opening credit balance of Rs. 3.10 lakhs, a sum of Rs. 56.90 lakhs became due to be recovered. However, this amount could not be recovered even after several requests, reminders and legal notice. Ultimately, Rs. 28.45 lakhs (50 per cent. of amount due) was written off as irrecverable in assessment year 2000-01. The balance amount was also written off as irrecoverable in the year 2004-05 and the same stands allowed in the assessment made under section 143(1). Similarly, Rs. 6,50,000 (being 50 per cent of the amount due) was written off in the case of M/s. G in the relevant assessment year. The AO disallowed the assessee's claim for bad debts holding that under section 36(2), to write off any bad debt the same has to be included in the income for earlier years which was not done in the case of the assessee. Both the lower appellate authorities also disallowed assessee's claim. Held: As the amount was lent during the ordinary course of the money lending business and included in income of the assessee in earlier years the deduction under section 36(2) read with section 36(1)(vii) was allowable.

The only condition laid down in the second part of sub-section (2) of section 36 is that the amount should be advanced in the ordinary course of business which, by itself, proves its revenue nature and no further conditions are required to be satisfied which are only applicable with regard to the debt qualifying as bad debt in the first part of sub-section (2). [Para 14] For the aforesaid reasons, court is in agreement with the submissions of the appellant-assessee as regards the interpretation of sub-section (2)(i) of section 36 and that being so, authorities below are not justified in holding that the amount of Rs. 34,95,000 was not allowable as bad debt under section 36(l)(vii) read with section 36(2). [Para 14]

Income Tax Act, 1961 Section 36(1)(vii)

Income Tax Act, 1961 Section 36(2)

IN THE DELHI HIGH COURT

A.K. SIKRI & M.L. MEHTA JJ.

All Grow Finance & Investment (P) Ltd. v. CIT

ITA No. 682 of 2011

3 June, 2011.