Instronics Limited Vs ITO (ITAT Delhi)
In this case, the assessee, a registered Non-Banking Financial Company (NBFC), filed its return declaring nil income for Assessment Year 2016-17. During scrutiny assessment, the Assessing Officer (AO) noticed that the assessee had claimed a deduction of ₹53,11,956 as bad debts in its Profit and Loss Account. The claim related to loans advanced to UM Power Ltd. and the interest accrued thereon over several financial years. According to the assessee, ₹46 lakh had been lent in the ordinary course of its money-lending business during FY 2012-13. Interest income on the loan had been recognized and offered to tax in subsequent years. After partial repayment of ₹6 lakh, the outstanding loan and accrued interest aggregated to ₹53,11,956, which was written off as irrecoverable during FY 2015-16.
The assessee contended that it fulfilled the conditions prescribed under Sections 36(1)(vii) and 36(2) of the Income-tax Act. It also relied upon CBDT Circular No. 12/2016 and submitted that the debt had been validly written off in its books of account. Being an NBFC, lending money formed part of its regular business activities.
The AO disallowed the claim. The primary reason was that a common director, Varsha Karan Singh, was associated with both the assessee company and the borrower company. The AO observed that documents relating to recovery efforts and the resolution approving the write-off were signed by the common director. On this basis, the AO concluded that the assessee had attempted to take undue advantage of the provisions relating to bad debts and held that the debt was not genuinely bad.
