2025 (2) TMI 1391 - AT - Income Tax

Non-recovery of business loan by NBFC treated as bad debt under s.36(2) or business loss, Rs.5 Crore allowed

When a registered NBFC advances a loan in the course of business and part of the principal becomes irrecoverable, that portion is allowable as a bad debt ... Disallowance of loss / bad debt claimed on account of non-recovery of principal component of loan advanced by the assessee - assessee is registered at NBFC and in the course of business activity it has advanced loan HELD THAT:- Once loan has been given during the course of business and if part thereof has admittedly become irrecoverable, the same has to be allowed as bad debt u/s.36(2) or as business loss while computing the income under the head ‘profits and gains’ from business u/s.29. We are unable to understand the logic and the reference made by the ld. AO upon the judgment in the case of CIT vs. Mahindra and Mahindra Ltd. [2018 (5) TMI 358 - SUPREME COURT] where the issue was of waiver of loan and whether the amount can be held to be taxable in the hands of the recipient. Here in this case assessee has given loan and not received any loan which has been waived of. CIT(A) has held that assessee has not demonstrated the relevant details of loan transaction and its purpose and terms. All these observations has no relevance once the factum of the matter that assessee had given loan in the earlier year as part of its business activity and assessee could only recover half of the loan as per the decree of the Hon’ble Bombay High Court, then the balance half of Rs. 5 Crores has to be allowed as bad debt or business loss. Accordingly, the claim of the assessee is allowed in the grounds Issues: Whether the assessee, an NBFC, is entitled to claim Rs. 5,00,00,000 as bad debt or business loss on account of non-recovery of part of a loan (principal) decreed as irrecoverable by the Bombay High Court.Analysis: Facts establish that the loan of Rs.10 Crore was advanced in the course of the assessee's lending business and was written off in the earlier year though not claimed due to pending litigation. A consent decree from the Bombay High Court fixed recovery at Rs.5 Crore, leaving Rs.5 Crore irrecoverable. The legal authorities cited regarding waiver of loans concern taxation of amounts waived in the hands of recipients and are distinct from claims by a lender for loss on non-recovery. Where a loan is given in the course of business and a portion becomes irrecoverable, that portion operates as a bad debt or business loss under the provisions governing computation of business income. The absence of certain transactional details does not negate the fact that the loan was advanced as part of the assessee's business of lending and that the decree established the irrecoverability of the balance amount.Conclusion: The claim of Rs.5,00,00,000 is allowable as a bad debt or business loss in favour of the assessee.