Delhi High Court Upholds Treatment of Loan Portfolio Loss as Bad Debt Deduction

The Delhi High Court dismissed the Revenue's appeals regarding the treatment of loss on the sale of a loan portfolio by a non-banking financial company. The court upheld the assessee's position that the loss should be treated as a deduction for bad debt under Section 36(2)(i) of the Income Tax Act. The judgment emphasized the importance of consistency in applying tax laws based on past practices and judicial decisions, affirming the approach taken by the assessee in the previous year and supported by the Tribunal for A.Y. 2004-05.

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Issues: Treatment of loss on sale of loan portfolio as income instead of capital gain.

In this case, the primary issue before the Delhi High Court was the treatment of loss on the sale of a loan portfolio by a non-banking financial company. The Revenue contended that the loss should be treated as income rather than falling under the capital stream. The assessee, relying on Section 36(2)(i) of the Income Tax Act, argued that the deduction for bad debt should be allowed as the debt was taken into account in computing the income of the previous year. The Court observed that the assessee had followed a similar treatment in the previous year and that the Tribunal had also upheld this approach for A.Y. 2004-05.

The Court, after considering the arguments presented, concluded that no substantial question of law arose in this matter. Consequently, the appeals made by the Revenue were dismissed. The judgment reaffirmed the application of Section 36(2)(i) in determining the treatment of bad debts and highlighted the importance of consistency in such matters based on past practices and judicial decisions.

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