Commissioner of Income Tax vs IFCI Venture Capital Funds Ltd.

V.B. Gupta, J.—By way of the present appeal, Revenue has challenged the impugned order dated 8th September, 2006 passed by Income Tax Appellate Tribunal (for short as ''Tribunal'') in IT Appeal No. 2349/Del/2002 for the Assessment Year 1998-99, vide which the claim of the Assessee was allowed u/s 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961 (for short as ''Act''). The Assessee in the present case is engaged in the business of providing loan to Entrepreneurs and public finance institutions. During the relevant financial year, Assessee claimed bad debts written off in respect of amount due along with interest due there on from Sh. S.C. Chawla, B.R. Agarwal, G. Sampath, M/s. Decan Petroleum Ltd. and M/s. Kei Graphics Pvt. Ltd. totaling to Rs. 78,72,189/- In the assessment proceedings it was held by the Assessing Officer that since the Assessee has filed legal suits for recovery thus there is some hope of recovery of debts and the debts have not become bad completely. Though the loans were granted in the year 1980, the Assessee was unable to recover the outstanding sum as well as interest and service charges due thereon, the Assessing Officer held that since there is possibility of revering the bad debts, the claim is not allowable.

The Assessee field an appeal against the order of Assessing Officer. The Commissioner of Income Tax (Appeal) found no justification in the disallowance of the claim of the had debts so made by the Assessing Officer and accordingly the same was directed to be deleted.

Aggrieved with the order passed by the Commissioner of Income Tax (Appeal), the Revenue challenged that order before the Tribunal. The Tribunal dismissed the appeal filed by the Revenue and thus the Revenue is before this Court.

It has been contended by learned counsel for the Revenue that as per the provision of Section 36(2) of the Act, no deduction is allowable to the Assessee unless such debt has been taken into account in computing the income of the assessee of the Previous year in which, such debt has been written off for or of and earlier previous year, or represents money lent in the ordinary course of business of banking or money lending carried on by the Assessee and since the amount represented the loan advanced by the Assessee to the parties and that was not in the course of business or money lending as such provisions of Sections 36(2) have not been satisfied in this case.

As per provisions of Section 36(1)(vii) of the Act, as amended w.e.f. 1st April, 1989, the Assessee is not required to establish that the concerned debt has actually become bad in the relevant year for the purpose of claiming deduction under the section and the only requirement for claiming this deduction is that the Assessee has to write off the relevant debts in its books of accounts treating the same as bad.

In the present case, there is a finding of fact by the Tribunal that since the amount has been written off in the accounts, the Assessee was no more required to prove whether the amount has become bad during the year or not. The write off is bona fide. Under the circumstances, we hold that the Assessee is duly entitled for deduction of the sum of Rs. 78,72,189/- on account of bad debts and we do not find any infirmity in the reasoning given by the Tribunal on this point and as such no substantial question of law arises in this case for our consideration and the appeal filed by the Revenue is not maintainable and the same is hereby dismissed.