TaxTMI 
TaxTMI 
2010 (4) TMI 1228
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....he ld CIT (A) erred in allowing the assessee's claim of bad debts of Rs. 242.08 lakhs being principal amount of hire purchase/lease finance u/s.36(1)(vii) of the I.T.Act, 1961, without appreciating that the pre-condition laid down in section 36(2)(i) of the I.T.Act, 1961 is not satisfied, as such, debt has not been taken into account in computing the income of the assessee and that the assessee is neither engaged in the business banking nor money lending. 2. On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in allowing the assessee's claim of bad debt of Rs. 242.08 lakhs mentioned above, without appreciating the decision of the Hon'ble Madras High Court in the case of South India Surgical Co. 2....
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....ch, the assessee had claimed write off, which is reproduced hereunder:- "Principal Hire Purchase amount Rs. 36,47,164/- Add: Income offered for taxation in earlier years Rs. 19,18,408/- Rs. 55,65,572/- Less: Income reversed Nil NPA provision made 5,56,557/- Rs. 5,56,557/- Amount written off in the previous year under consideration: Rs. 50,09,015/-:" He examined in detail the assessee's claim in regard to write off of the principal Hire purchase amount given to parties. He noted that in view of the provisions of Section 36(1)(vii) and various judicial pronouncements, two basic requirements for the write off of any amount of bad debts were as under:- "i) The debts ....
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.... to the extent of Rs. 2,34,05,948/- detailed as below:- "Income offered in earlier years As per Annexure 'A' to this order Rs. 9,16,18,551 Less: Income reversed Rs. 2,86,64,737 Less: Provision made for NPA Rs. 3,95,47,866 Rs. 6,82,12,603 Bad debts allowed Rs. 2,34,05,948" 3. Ld CIT (A) following the decision of the Hon'ble Bombay High Court in the case of Omaprakash B Salecha dated 12.3.2008 and also the decision of the ITAT Delhi in the case of Tulip Star Hotel Ltd v ACIT, 17 SOT 108 (Del) deleted the addition. 4. Ld D.R. submitted that the basic issue is whether the assessee is in the business of banking or money lending so as to be entitled for deduction of the principal amount....
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....mponent which was taken as income in earlier yers. He further submitted that there is no claim of business loss and whether the necessary conditions regarding the same are satisfied or not have to be examined if the same is to be considered as business loss. 5. In the alternative, he further referred to the decision of ITAT (SB) in the case of Gujrat Gas Financial Service (supra) and pointed out that since income from money lending activity was less than 50%, it was held that principal activity of the assessee was not money lending. He referred to page 4 of the assessment order to demonstrate that the income from leasing and hire purchase was never more than 50% and in the year under consideration, the assessee was not even engaged ....
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....tter dated 30.8.1992. The implication of this is that hire purchase and leasing finance business comes within the ambit of granting of loan activity by the assessee and the assessee is to be treated as Non Banking Finance Company. The Assessing Officer has himself allowed the interest part of the hire purchase and leasing finance as bad debts and the only dispute is regarding principal amount given in hire purchase and lease finance. In the case of Tulip Star Hotel Ltd (supra), it was held that money lending activity is part of Non Banking Finance Business. Ld D.R. submitted that this decision is applicable with reference to inter corporate deposit. However, we find that the Tribunal has, inter alia, noted as under:- "The assessee ....
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....he definition of Finance company was considered in Section 2(5B) of the Interest Tax Act. In that context, the principal business of the company was determined with reference to income derived from leasing business. This decision, in our opinion, is not applicable to the facts of the case. 9. In the present case, we have to examine the issue in the light of the fact that the assessee is a non banking finance company. The composition of income cannot be a deciding factory in such circumstances. Under the provisions of Section 36(1)(vii), the only requirement is that the amount written off should represent money lending in the ordinary course of business of banking or money lending, which is fulfilled as the assessee was a NBFC and carried....