Tax Appeal Success: Loan Disallowance Reversed & Capital Gains Computation Corrected

The Tribunal allowed the appeal for the assessment year 2013-14, reversing the disallowance of a loan advanced by the assessee to a company and correcting the computation of tax on capital gains. The disallowance of the loan was reversed as it was considered a bad debt under section 36(2) due to the assessee's engagement in financing, interest income shown, and meeting deduction conditions. Additionally, the computation error in long-term capital gains was rectified, aligning it with the correct figure, resulting in the allowance of the appeal on this ground.

---

---

Issues:
1. Disallowance of loan advanced by assessee to a company and claimed as business loss.
2. Computation of tax payable by the assessee.

Issue 1 - Disallowance of Loan:
The appeal was filed against the order confirming disallowance of Rs. 2 crores for a loan advanced by the assessee to a company, written off, and claimed as a business loss. The assessing officer noted that the borrower company became sick in 1998, but loans were given starting from 2001. The assessing officer found no business exigency in granting the loan, as the borrower's directors were partners of the assessee firm. The assessing officer disallowed the amount as bad debt, citing lack of interest income, and no previous credit of the sum in the assessee's books. The CIT(A) upheld the disallowance, stating it was not allowable under relevant sections. The authorized representative argued that the loan was given in the ordinary course of business, supported by the partnership deed and past financial records. The Tribunal found the loan was allowable as a bad debt under section 36(2) since the assessee was engaged in the business of financing, had shown interest income, and met the conditions for deduction. The disallowance was reversed, and the assessing officer was directed to delete the Rs. 2 crores disallowance.

Issue 2 - Computation of Tax:
The second issue related to the set off of business loss against capital gains instead of business income. The assessing officer incorrectly computed the long-term capital gain, leading to an error in the income tax computation form. The Tribunal directed the officer to correct the computation by considering the long-term capital gain at Rs. 5,48,65,125, aligning it with the correct figure. Consequently, the assessee's appeal on this ground was allowed.

In conclusion, the Tribunal allowed the appeal filed by the assessee for the assessment year 2013-14, reversing the disallowance of the loan and correcting the computation of tax on capital gains.

---