2022 (4) TMI 1231 - HC - Income Tax

Claim of Bad Debts Disallowed for Lack of Business Purpose

M/s. Hotel Sri Lakshmi Versus The Assistant Commissioner of Income-Tax, Circle – III, Coimbatore.

The High Court upheld the disallowance of the claim of bad debts as a business loss or bad debt due to insufficient evidence supporting a business purpose ... Disallowance under the head 'business loss / bad debts' - claim was alternatively made as against the original claim of bad debts u/s.36(1)(vii) of the Act in relation to the transaction involving advancing of monies for purchase of property in the process of making an attempt to expand the business of the appellant by misreading the facts of the case resulting in perversity in the order passed by them - HELD THAT:- It could be seen from the findings of the authorities below that after analysing the entire pleadings and the submissions made on either side, they have in unequivocal terms, held that there was no material available to prove that the loss incurred by the appellant / assessee was for the purpose of acquiring the property at Coimbatore for expansion of its business and hence, the same was not treated as business loss / bad debts. Such a finding rendered by the authorities below, based on the material evidence, does not require any interfere by this court. Further, the decision relied on the side of the appellant as was made before the Tribunal, is of no help to the case of the appellant / assessee, as it is factually distinguishable. It is settled law that “a court of appeal interferes not when the judgment under attack is not right, but only when it is shown to be wrong” [Refer: Dollar Co. v. Collector of Madras, [1975 (5) TMI 87 - SUPREME COURT]. In such view of the matter, there is no question of law, much less substantial question of law arisen for consideration herein Issues:1. Disallowance of claim of bad debts by the assessing officer.2. Appeal against the order of the Income Tax Appellate Tribunal.3. Interpretation of the claim as business loss under the Income-tax Act.4. Admissibility of the claim as business loss or bad debt.Analysis:Issue 1: Disallowance of claim of bad debts by the assessing officerThe appellant/assessee filed a return of income for the assessment year 2006-07, admitting a total income. However, the assessing officer disallowed the claim of bad debts amounting to a specific sum. The appellant challenged this disallowance, arguing that the loss incurred in expanding the business should be treated as a business loss or bad debt eligible for deduction under the Act.Issue 2: Appeal against the order of the Income Tax Appellate TribunalThe appellant's appeal before the Commissioner of Income Tax (Appeals)-1 and subsequently before the Income Tax Appellate Tribunal (ITAT) was dismissed. The ITAT upheld the disallowance of the claim, emphasizing that there was no evidence to support that the loss incurred was for the purpose of acquiring property for business expansion. The Tribunal found the appellant's submissions inconsistent and lacking in business purpose, leading to the dismissal of the appeal.Issue 3: Interpretation of the claim as business loss under the Income-tax ActThe appellant contended that the loss incurred in the attempt to expand the business should be considered a business loss or bad debt, citing a decision of the Hon'ble Supreme Court. The appellant argued that the loss was incidental to carrying on the business and should be deductible under Section 10(1) of the Act. However, the assessing officer and the appellate authorities found no business link or commercial expediency for the amount paid, leading to the disallowance of the claim.Issue 4: Admissibility of the claim as business loss or bad debtThe High Court analyzed the findings of the authorities below and concluded that there was insufficient evidence to prove that the loss incurred was for business purposes. The Court noted that the appellant failed to establish a business connection or intention to purchase property for business expansion. The Court upheld the decision of the authorities below, emphasizing that the claim was rightly disallowed as there was no demonstrated business purpose. The Court dismissed the appeal, citing settled law that interference is only warranted when a judgment is shown to be wrong, not merely when it is not right.In conclusion, the High Court dismissed the Tax Case Appeal, upholding the disallowance of the claim of bad debts as a business loss or bad debt due to the lack of evidence supporting a business purpose for the incurred loss.