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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI A.T. VARKEY & SHRI PRASHANT MAHARISHI
PER A.T. VARKEY, JUDICIAL MEMBER :
This is an appeal filed by the revenue against the order of the CIT (Appeals)-XIII, New Delhi dated 16.08.2013 for the assessment year 2005- 06.
The grounds of appeal taken by the revenue read as under :-
“1. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of Rs.3,06,13,633/- made on account of bad debts written off. 2. On the facts and circumstances of the case and in law, the CIT (A) has was not justified in allowing the claim of the assessee u/s 28 of the Act whereas in the return of income the claim was made u/s 36(1)(vii) of the Income Tax Act, 1961.”
The sole ground is in respect of deletion of disallowance of Rs.3,06,13,633/- made by the AO on account of bad debts written off. The CIT (A) allowed the claim of the assessee as a business loss u/s 68 of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The brief facts of the case are that the assessee filed its return of income on 29.10.2005 showing a total loss of Rs.3,53,75,859/-. The notice u/s 148 of the Act was issued on 27.03.2012. In the assessment order, it is stated that while verifying the case records, the AO observed that the assessee has shown doubtful debts written back of Rs.3,06,13,633/- and claimed it as expenditure by making adjustment in computation of income, which is not an allowable expenditure under the Act. Thus, according to the AO, the assessee had not disclosed its income correctly to the extent of Rs.3,06,13,633/-. The arguments of the assessee were not acceptable to the AO because, as per the AO, the assessee had created provision in earlier years and same was also offered for taxation in earlier years. In the year under consideration, according to the AO, the assessee had shown an amount of Rs.3,06,13,633/- in income side and the same was also shown in expenditure side. Further, the assessee has deducted the same from computation of income, therefore, the AO added back the said sum to the income of the assessee and worked out to the total loss of Rs.47,62,266/-.
On appeal before the CIT (A), the assessee clarified that the provisions for debts made in the earlier years and the amounts were added back to the income. However, during the year under consideration, the amount of bad debt is written off from the books of accounts and claimed as deduction. The assessee submitted bad debts written off at Rs.3,03,13,633/- which included Rs.2,90,00,000/- on account of principal outstanding and Rs.16,13,633/- on account of interest due from M/s. M.S. Shoes Limited. The assessee company pointed out that it being an NBFC, the entire write off including principal amount of loan is incidental to the business of the assessee company. The ld. AR also pleaded that the assessee is entitled to the deduction of full amount of bad debts u/s 36(1)(vii) of the Act or otherwise as a business loss in computing the profits and gains of business u/s 28 of the Act. It was also submitted before the ld. CIT (A) that ITAT in the case of CIT vs. Shreyas S. Morakhia dated 28.02.2012 in of 2011 held that even if a part of bad debts have to be taken into account while computing the income of the assessee and offered for tax in an earlier year, the same would be sufficient satisfaction of section 36(2) of the Act. The ld. AR also stated that any loss which occurs in carrying on the business and is related to the business operation is entitled to be deducted to arrive at the profits and gains of a business under section 28 of the Act. He referred to the decision of CIT vs. R.B. Rungta & Co. reported in 50 ITR 233. After hearing the ld. AR as well as the department, the CIT (A) held as under :-
“In the light of the judgment of Hon’ble Bombay High Court, it is clear that section 28 of the Act imposes a charge on the profits or gains of business or profession. The expression “profits and gains of business or profession” is to be understood in its ordinary commercial meaning and the same does not mean total receipts. What has to brought to tax is the net amount earned by carrying on a profession or a business which necessarily requires deducting expenses and losses incurred in carrying on business or profession. The Hon'ble Apex Court in the case of Badridas Daga v. Commissioner of Income Tax, reported in 34 ITR 10, has held that in assessing the amount of profits and gains liable to tax, one must necessarily have regard to the accepted commercial practice that deduction of such expenses and losses is to be allowed, if it arises in carrying on business and is incidental to it. On the basis of the aforesaid decisions, it can be concluded that even if the deduction is not allowable as bad debts, the same can be considered for deduction as business loss. This is particularly so as there is no bar in claiming a loss as a business loss, if the same is incidental to carrying on of a business. The fact that condition of bad debts were not satisfied by the assessee would not prevent him from claiming deduction as a business loss incurred in the course of carrying on business as Non Banking Finance Company. Under the circumstances, it is held that the assessee was duly entitled to deduction of a sum of Rs.3,06,13,633/- on account of business loss.”
We have heard both the sides and perused the records. We find that in the case of Mohan Meakins Ltd. vs. CIT – 348 ITR 449, the Hon’ble jurisdictional High Court has held in that case that though the assessee’s claim was u/s 37(1) of the Act, however, it was allowed u/s 28 as business loss, so one is entitled to claim a deduction under different provision of the Act other than the provision claimed in the return or in the assessment proceedings. There is no dispute that the assessee is an NBFC and the principal amount of loan comes to Rs.2,90,00,000/- and the interest amount of Rs.16,13,633/- which was due from M/s. M.S. Shoes Limited. The CIT (A) has rightly referred to Hon’ble Apex Court decision in the case of Badridas Daga vs. CIT reported in 34 ITR 10 wherein it was held that in assessing the amount of profits and gains liable to tax, one must necessarily have regard to the accepted commercial practice that deduction of such expenses and losses is to be allowed, if it arises in carrying on business and is incidental to it. We find that the CIT (A) has rightly held that the assessee’s claim of deduction as business loss incurred in the course of carrying on business as Non Banking Finance Company and we agree with the said finding and accordingly, we uphold the order of the CIT (A).
In the result, the appeal of the revenue is dismissed.
Order pronounced in open court on this 16th day of March, 2016.