Loss on sale of repossessed assets held deductible bad debt under s.36(1)(vii) r/w 36(2), not capital

HC dismissed Revenue's appeal, holding that loss on sale of repossessed assets by the assessee-NBFC constitutes a bad debt deductible u/s 36(1)(vii) r/w s. 36(2), not a capital loss. CIT(A) and ITAT were upheld in treating the assessee as a moneylender under a hire-purchase financing scheme, where the purchaser remained owner of vehicles and the assessee only a lender. The Allahabad HC decision in Motor & General Sales Pvt. Ltd. was distinguished as involving mere revaluation without sale. Applying the Calcutta HC ruling in A.W. Figgies, the HC held no substantial question of law arose and dismissed the appeal.

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Issues: (i) Whether loss on sale of repossessed assets is allowable as a bad debt under Section 36(1)(vii) read with Section 36(2) of the Income-tax Act; (ii) Whether depreciation at the rate of 60% is allowable on computer accessories and peripherals.

Issue (i): Whether the loss arising from sale of repossessed vehicles by a money-lending enterprise constitutes a bad debt allowable under the statutory provisions governing bad debts.

Analysis: The facts establish that the taxpayer is engaged in money-lending in the ordinary course of business; when borrowers defaulted the financed vehicles were repossessed and sold, the sale proceeds were credited to borrower accounts and the residual amounts written off. The tribunal and appellate authority applied the criteria of Section 36(1)(vii) and Section 36(2), distinguishing precedents where mere revaluation (without sale and write-off in money-lending context) was involved. The accounting description used by the assessee does not alter the substantive character of the transaction as a write-off of unrecoverable advances made in the ordinary course of business.

Conclusion: Loss on sale of repossessed assets is allowable as a bad debt under Section 36(1)(vii) read with Section 36(2) of the Income-tax Act; conclusion is in favour of the assessee.

Issue (ii): Whether depreciation at 60% is allowable on computer accessories and peripherals.

Analysis: The issue is addressed by binding precedent of the same court allowing 60% depreciation on computers and peripherals, and the tribunal and appellate authority applied that view to permit 60% depreciation.

Conclusion: Depreciation at the rate of 60% on computer accessories and peripherals is allowable; conclusion is in favour of the assessee.

Final Conclusion: The appellate review confirms that the amounts written off on account of unrecoverable advances in the money-lending business qualify as bad debts under the statutory scheme and that enhanced depreciation on computer peripherals is permissible; consequently the appellate challenge is dismissed.

Ratio Decidendi: Where money is lent in the ordinary course of a money-lending business, amounts rendered irrecoverable and written off following repossession and sale of secured assets constitute bad debts allowable under Section 36(1)(vii) read with Section 36(2) of the Income-tax Act; accounting nomenclature does not alter this character.

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