TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 1070
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Is not doing the business in money lending." 3. The Appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the AO be restored." 3. Brief facts of the case as under :- The A.O. has observed in the assessment order that the assessee has debited a sum of Rs. 6,18,26,741/- as bad debts written off in the P & L account. After examining the details of the same obtained from the appellant during the assessment proceedings, the A.O. observed that the bad debts written off included the following amounts which represented the principal amount of the loans advanced by the assessee. Sr. No Name of the party Amount (Rs.) 1 Pravara Oos Tod Va Vahatuk 3,84,78,892 2 Zenal Construction Pvt. Ltd. 1,85,00,000 Total 5,69,78,892 The A.O. held that the principal amount of the loans advanced by the assessee, which is written off in the books of account, is not eligible to be considered as a deductible expense u/s. 36(l)(vii) read with section 36(2) as "bad debts written off", since such amounts did not meet the condition laid down in section 36(2) of the Act that such debt has been taken into account in computing the income of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9-10 that the carrying on of finance business by the appellant and admission of business income therefrom has been accepted by the department. Thus, it is seen that there is no dispute regarding the fact that the appellant company is engaged in the business of finance, apart from other business activities. 20. As regards the two cases of principal amount of the loans advanced by the appellant which were written off in the books of account during the previous year and claimed as deduction towards bad debts written off, which were the subject matter of disallowance by the A.O., it is seen that these loans were advanced by the appellant in the course of carrying on of the finance business. In respect of the loan advanced to Pravara Oos Tod Va Vahatuk, it is noticed from the information furnished by the appellant before the A.O. during the assessment proceedings that two loans of Rs. 5 crores each were advanced to the said person during the previous year relevant to the A.Y. 2008-09 and interest of Rs. 16.44 lakhs (net of TDS) was charged on the said loans for that year. Principal amount to the extent of Rs. 98.46 lakhs was recovered during the same year. During the previous year rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the income of the assessee of the previous year in which the amount of such debt is written off or of an earlier previous year" since the same were not included in the total income admitted by the assessee either for the present A.Y. or for any of the earlier A.Ys. However, it is seen that the A.O. has omitted to consider the second limb of the condition specified in Section 36(2) of the Act which is applicable to any amounts lent to the ordinary course of money lending business carried on by the assessee. In this regard, it would be useful to refer to the provisions of Clause (i) of Section 36(2) which reads as under: "no such deduct/on shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business or money-lending which is carried on by the assessee." 25. It can be seen from the above that the second limb of this clause (which has been underlined) deals with an alternate condition to be fulfilled for the purpose of being eligible for deduction ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... CIT (338 ITR 496)(Delhi HC) * B.N. Khandelwal Vs. ITO (16 SOT 343)(ITAT) 8. We have carefully considered the submissions and perused the records. We find that assessee apart from being a builder and developer is also engaged in the business of financing/money lending. Learned CIT(A) has also given a finding to this effect. This is also supported by the fact that the loans were granted by the assessee in earlier years and the income there from has been offered to tax. 9. Now when these loans are becoming irrecoverable the writing off of the same is eligible for deduction under section 36(2). We note that section 36 (2) posits that, in making any deduction for a bad debt or part thereof the following provisions shall apply. No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof written of more often earlier previous year, or represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. 10. From the above it is amply evident that writing off of sums which represent mone....