2021 (5) TMI 301 - AT - Income Tax

Tribunal upholds decision on bad debt write-off criteria under Income Tax Act

The Tribunal affirmed the CIT(A)'s decision, concluding that the assessee did not meet the criteria for writing off the bad debt under section 36(1)(iii) ... Addition u/s 36(1)(iii) - bad debts written off - assessee had debited a sum against the head sundry balances written off - assessee nowhere explained the transaction essential during the course of business - assessee also received the loan - HELD THAT:- As the assessee failed to prove this fact that the loan was given in the ordinary course of business of banking or money lending carried out by the assessee. Out of the amount of ₹ 2,31,02,343/-, ₹ 36,35,000/- was advanced to employees which undoubtedly would be in the ordinary course of business of the assessee. The assessee was not in the business of banking or money lending. The condition in view of the provisions u/s 36(2)(i) of the Act has not been satisfied. The facts are not distinguishable at this stage. No material of any kind has been produced to which it can be assumed that the finding of the CIT(A) is not justifiable. We dismiss the appeal of the assessee. Issues Involved:1. Confirmation of addition under section 36(1)(iii) of the Income Tax Act amounting to Rs. 2,31,02,343/-.Issue-wise Detailed Analysis:Issue No. 1: Confirmation of addition under section 36(1)(iii) of the Income Tax Act amounting to Rs. 2,31,02,343/-The assessee challenged the confirmation of the addition under section 36(1)(iii) of the Income Tax Act, arguing that the Commissioner of Income Tax (Appeals) [CIT(A)] wrongly declined the claim. The CIT(A) had upheld the addition made by the Assessing Officer (AO) on the grounds that the assessee failed to prove that the loans given were in the ordinary course of business of banking or money lending.The CIT(A) referenced sections 36(1)(vii) and 36(2) of the Income Tax Act, which stipulate that for a bad debt to be written off, it must have been taken into account in computing the income of the assessee in the year it is written off or in any previous year, or it must represent money lent in the ordinary course of business of banking or money lending. In this case, the assessee provided advances to employees of associate companies and a loan to Mega Meditex Ltd., neither of which were proven to have been taken into account in computing the income of the assessee in any year. Additionally, the assessee was not in the business of banking or money lending but in providing consultancy and managerial services in the financial sector.The CIT(A) cited several judicial precedents, including:- Balaji Enterprises (P.) Ltd. v. Deputy Commissioner of Income-tax Circle 2(1), New Delhi [2010] 123 ITD 528 (Delhi): The court held that for a debt to be written off as bad, it must have arisen in the course of the assessee's business and should have been taken into account in computing the income.- G.R. Pandya Share Broking Ltd. v. Income-tax Officer, 4(1)(2) [2008] 26 SOT 431 (Mumbai): The court emphasized that only the brokerage taken into account while computing the total income could be written off as bad debt.- Tube Investments of India Ltd. v. Joint Commissioner of Income-tax, Special Range-I, Chennai [2016] 67 taxmann.com 59 (Madras): The court reiterated that a bad debt must be an incident to the business and should have been taken into account in computing the income of the assessee.The Tribunal found that the assessee failed to prove that the loan was given in the ordinary course of business of banking or money lending. The advances to employees and the loan to Mega Meditex Ltd. did not satisfy the conditions of section 36(2)(i) of the Act. Consequently, the Tribunal upheld the CIT(A)'s finding and dismissed the appeal of the assessee.Conclusion:The Tribunal affirmed the CIT(A)'s decision, concluding that the assessee did not meet the criteria for writing off the bad debt under section 36(1)(iii) of the Income Tax Act. The appeal filed by the assessee was dismissed.