Shortage towards principal is allowable as bad debt In lending business

Global Consultants & Designers Pvt. Ltd Vs ITO (ITAT Delhi)

ITAT Delhi held that shortfall in interest adjusted from principal amount on principle of first appropriation towards interest before principal. Then, assessee being in lending business, the shortage towards principal is allowable as bad debt.

Facts- The dispute hovers around the fact that during the year under consideration the assessee company advanced a sum of Rs. 6,00,00,000/- to M/s Parsvnath Developers Ltd. (M/s. PDL) refundable by 24.09.2014. M/s PDL Defaulted in payment of principal and interest paid by the agreed date i.e. 24.09.2014. The assessee company claims to have persuade hard for recovery of principal as well as interest and with great persuasion it was able to recover Rs.2,00,00,000/- by the end of the previous year. The assessee company further asked for payment of balance amount and interest due, but M/s PDL agreed to pay principal only on the condition of waiver of interest due.

In the month of April 2015 M/s PDL paid a sum of Rs.3,80,00,000/- out of principal and balance amount of Rs.20,00,000/- was paid in the month of June,2015. However, it has deposited TDS amounting to Rs.8.57,096/- on interest payable to the assessee company.

As agreed earlier in April 2015, interest was waived off and a formal agreement was entered, vide Settlement Deed dated 14.07.2015. Thus the assessee claims to have only received interest to the extent of TDS deposited by M/s M/s PDL, which have been duly accounted for in the books of account and shown as interest received from M/s PDL.

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