2020 (12) TMI 675 - HC - Income Tax

High Court quashes tribunal decisions on deductions, emphasizes evidence appreciation and tax act compliance.

The High Court quashed the tribunal's decisions on certain issues related to deductions and remitted those matters for fresh consideration, while ... Disallowance u/s 36 - entitled to written off the outstanding amount and claimed deduction under Section 36(2) or under Section 37(1) - AO held that the assessee is neither a bank nor a money lender and therefore, is not entitled to written off the outstanding amount and claimed deduction u/s 36(2) or u/s 37(1) - HELD THAT:- From perusal of Clause 13 of the memorandum of Association, it is evident that one of the object's of the assessee is to lend money and the assessee has been engaged in money lending business since its inception from financial year 2004-05. The schedule of loans and advances is a continuing feature in all the past years and has been accepted by the department as part of business by taxing the income under the head 'income from business'. Assessee has been carrying on the money lending business and it has been taxed so under the head business for past 9 years has been over looked. It is pertinent to mention here that holding of money lending licence is not a prerequisite for allowing a claim of bad debts as is held by Supreme Court in TRF Ltd. [2010 (2) TMI 211 - SUPREME COURT] and it is enough if the irrecoverable debt is written off in the books of accounts. It is also pertinent to note that non charging of interest is not fatal to the claim for deduction. However, the aforesaid aspect of the matter has not been appreciated by the tribunal. Alternatively, the claim of the assessee under Section 37(1) of the Act has also not been examined. The issue with regard to the claim of the assessee under Section 14A of the Act has not been adjudicated. We therefore, quash the order passed by the tribunal insofar as it pertains to disallowance of the claim of bad debts to the sum and disallowance of claim under Section 14A of the Act and remit the matter to the tribunal for decision afresh in accordance with law. The orders passed by the Commissioner of Income Tax (Appeals) as well as the tribunal with regard to remaining issues are maintained. Issues:1. Interpretation of the objects mentioned in the memorandum of association for deduction under Section 36(1)(vii) of the Income Tax Act.2. Denial of bad debts written off as allowable deductions under Section 36(2) or Section 37(1) of the Act.3. Consideration of evidences filed by the assessee for interest amount and debt portion in computing income.4. Quantification of deduction under Section 14(A) of the Income Tax Act.5. Adjudication of eligible credit under Section 115JAA.Issue 1:The main issue in this case was the interpretation of the objects mentioned in the memorandum of association for deduction under Section 36(1)(vii) of the Income Tax Act. The tribunal held that the object of the assessee did not include imparting education, leading to the disallowance of the claim for deduction under Section 36(1)(vii) of the Act. The appellant argued that the loan given to another entity was part of the money lending business, meeting the conditions for deduction. The High Court observed that the tribunal overlooked the fact that the assessee had been engaged in money lending business for several years, and not charging interest did not invalidate the claim for deduction. The court quashed the tribunal's order on this issue and remitted the matter for fresh consideration.Issue 2:The denial of bad debts written off as allowable deductions under Section 36(2) or Section 37(1) of the Act was another significant issue. The Assessing Officer disallowed the claim for bad debts written off, leading to the appeal. The appellant contended that the non-recoverable loan was written off in compliance with Section 36(1)(vii) of the Act. The court found that the tribunal failed to appreciate the assessee's money lending business and the conditions for claiming bad debts. The court quashed the tribunal's decision on this issue and remitted it for fresh consideration.Issue 3:Regarding the consideration of evidences filed by the assessee for interest amount and debt portion in computing income, the tribunal did not take into account the evidence submitted. The appellant argued that the interest amount was offered for tax in earlier years, and a portion of the debt was considered in computing income. The court did not find merit in this argument and upheld the tribunal's decision on this issue.Issue 4:The quantification of deduction under Section 14(A) of the Income Tax Act was also challenged. The tribunal did not adjudicate on this issue, leading to the appeal. The court quashed the tribunal's decision on this issue and remitted it for fresh consideration in accordance with the law.Issue 5:The final issue was the adjudication of eligible credit under Section 115JAA. The tribunal did not address this issue despite a specific ground raised by the appellant. The court did not find it necessary to answer the substantial questions of law framed in this appeal, as the orders passed by the Commissioner of Income Tax (Appeals) and the tribunal on the remaining issues were maintained.In conclusion, the High Court quashed the tribunal's decisions on certain issues related to deductions and remitted those matters for fresh consideration, while upholding the decisions on other issues. The court emphasized the importance of proper appreciation of evidence and compliance with the provisions of the Income Tax Act in determining deductions and credits.