Case Law Details
PCIT Vs Homi Mehta & Sons Pvt. Ltd. (Bombay High Court)
Assessee had advanced loans to its subsidiary company. The loan was interest bearing. The Respondent- Assessee claimed that the subsidiary company became loss making company and the Respondent- Assessee took a decision to write off the loan and claim the same as bad debts. The said claim has been denied by the Assessing Officer on two counts
(i) that the Respondent- Assessee was not in the business of giving loans and, therefore, conditions of section 36(2) of the Income Tax Act, 1961 were not satisfied and
(ii) that the claim of the Respondent- Assessee of loan becoming bad debts was not genuine as the Assessee was knowing that the loan was not recoverable. The Commissioner of Income Tax (Appeals) confirmed the decision of the Assessing Officer, however, the Tribunal held in favour of the Respondent Assessee holding that the claim of the Assessee was allowable.
The decision of the Supreme Court in the case of A.Builders Ltd. v. Commissioner of Income Tax (Appeals), Chandigarh1 holds the field on the issue of the assessee not being in the business of giving loans. It is laid down that after the amendment of 1 April 1989, it is not necessary for the Assessee to establish that the debt has, in fact, become irrecoverable and if the Assessee writes off the same as bad debts, it would serve the purpose.
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