Case Law Details
ACIT Vs Agnus Holdings Private Limited (ITAT Bangalore)
Bangalore ITAT Upholds Bad Debt Write-Off – Loans Advanced in Ordinary Course of Financing Business Allowable u/s 36(1)(vii)
The Income Tax Appellate Tribunal, Bangalore Bench, dismissed the Revenue’s appeal for assessment year 2018-19 against the order of the Commissioner of Income Tax (Appeals), which had deleted the disallowance of Rs.2.25 crore relating to advances written off by the assessee company. The assessee, engaged in investment, finance, and trading in shares, had filed its return declaring a loss. Following reopening of assessment under Section 147, the Assessing Officer disallowed the advances written off on the ground that the assessee failed to establish that the advances were made for business purposes and held that the advances were capital in nature.
Before the CIT(A), the assessee contended that the advances had been made during FY 2009-10 in the ordinary course of business to Mr. Kannan Ramanujam. It was submitted that the borrower later suffered financial losses and defaulted in repayment. The assessee argued that it had been carrying on financing and investment business for several years and that lending activities were covered by its Memorandum of Association. The assessee also relied upon audited financial statements, earlier assessment orders, and the auditor’s observation that the company was required to register as a Non-Banking Finance Company (NBFC).
The CIT(A) accepted the assessee’s submissions and held that the conditions under Section 36(1)(vii) of the Income-tax Act were satisfied. Reliance was placed on the Karnataka High Court decision in Pranava Electronics Pvt. Ltd. v. DCIT and the Supreme Court judgment in TRF Ltd. v. CIT. The disallowance was accordingly deleted.
Before the Tribunal, the Revenue argued that the Memorandum of Association did not mention advancing loans as a business activity and that the assessee’s case was distinguishable from the judicial precedents relied upon by the CIT(A). The Tribunal examined the Memorandum of Association, the audit report, RBI communication requiring NBFC registration, loan agreements, and financial statements showing substantial loans and advances. It also noted that earlier assessment orders had recognized the assessee’s business as finance, investment, and trading activities.
The Tribunal observed that the assessee had consistently carried on lending and financing business and that the advances were given in the ordinary course of business. It held that once the advances had become irrecoverable and were written off in the books, the claim was allowable as bad debt in view of the Supreme Court judgment in TRF Ltd. v. CIT. The Tribunal further noted that the Departmental Representative could not controvert the findings recorded by the CIT(A). Accordingly, the Tribunal confirmed the order of the CIT(A) and dismissed the Revenue’s appeal.
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