2016 (6) TMI 258 - AT - Income Tax

Revenue's Appeal Denied in Disallowance of Business Loss on Repossessed Assets

Dy. Commissioner of Income Tax, Circle 11 (1), New Delhi Versus M/s Escorts Finance Ltd.

Dy. Commissioner of Income Tax, Circle 11 (1), New Delhi Versus M/s Escorts Finance Ltd. - TMI Issues Involved:1. Deletion of disallowance of Rs. 1,12,38,236/- on account of loss on sale of repossessed assets being capital in nature.Issue 1: Deletion of Disallowance of Rs. 1,12,38,236/- on Account of Loss on Sale of Repossessed Assets Being Capital in NatureThe Revenue appealed against the order of the CIT(A) that allowed the assessee's claim of Rs. 1,12,38,236/- as a business loss on the sale of repossessed assets. The Assessing Officer (AO) had previously disallowed this claim, considering it a capital loss and not an allowable expenditure.The assessee, a non-banking finance company (NBFC), filed its return of income showing a total loss of Rs. 8,61,40,026/-. Upon assessment, the AO determined the total income at Rs. 34,47,210/- after disallowing the loss on sale of repossessed assets. The CIT(A) later allowed the assessee's appeal, treating the loss as a business expense.During the proceedings before the Tribunal, the Department's Representative (DR) argued that the loss was capital in nature and thus rightly disallowed by the AO. The Assessee's Counsel, however, contended that the issue was covered by several precedents, including decisions from the ITAT and High Courts, which supported the treatment of such losses as business expenses.The Tribunal reviewed the CIT(A)'s detailed discussion and findings, which referenced several judgments, notably:- Harshad J Choksi vs. CIT, Bombay High Court: This case established that even if a debt is not deductible as a bad debt under Section 36(1)(vii), it could still be considered a business loss under Section 28 of the Income Tax Act.- CIT vs. Citicorp Maruti Finance Ltd., Delhi High Court: This case involved similar facts where the assessee, engaged in vehicle financing, repossessed and sold vehicles, claiming the resultant loss as a bad debt. The court upheld that such losses could be treated as business expenses under Section 36(1)(vii) read with Section 36(2).The Tribunal noted that the expression 'profits and gains of business or profession' should be understood in its ordinary commercial meaning, which includes deducting expenses and losses incurred in carrying on the business. The loss on sale of repossessed assets, being incidental to the business of money lending and vehicle financing, was deemed a business expense rather than a capital loss.In conclusion, the Tribunal upheld the CIT(A)'s order, affirming that the assessee was entitled to the deduction of Rs. 1,12,38,236/- as a business loss. The appeal filed by the Revenue was dismissed.Order Pronounced: The appeal filed by the Revenue stands dismissed.