Commissioner of Income Tax vs Realest Builders and Services Ltd.

Badar Durrez Ahmed, J.—This appeal filed by the Revenue pertains to the assessment year 2001-02 and arises out of the order dated June 22, 2006, passed by the Income Tax Appellate Tribunal (hereinafter referred to "the Tribunal") in I.T.A. No. 1516/Delhi/2004. The Revenue''s appeal before the Tribunal involved the question whether the Commissioner of Income Tax (Appeals) had erred in deleting the addition of Rs. 32,90,820 made by the Assessing Officer after disallowing the deduction claimed in respect of bad debts to the said extent written off by the assessee in the year in question.

The facts are that the assessee had given a sum of Rs. 50 lakhs to Sahani Silk Mills Pvt. Ltd., New Delhi. The interest accrued on such an advance was assessed to tax as business income in the assessment years 1997-98 to 1999-2000. The debtor-company suffered a heavy loss due to a fire which broke out in its factory premises in March, 2000. The financial position of the debtor-company deteriorated to such an extent that even the cheques issued by them towards repayment of the loan and interest payments were repeatedly returned unpaid on the ground of insufficiency of funds. Thereafter, the board of directors of the assessee-company took a prudent business decision and passed a resolution on March 2, 2001, to negotiate the issue with the debtor company and to write off the amount to the extent it was irrecoverable. A compromise deed dated May 14, 2001, was also executed between the assessee-company and the said Sahani Silk Mills Pvt. Ltd. It is a result of this compromise that the sum of Rs. 32,90,820 was written off as bad debts in the books of the assessee-company in the relevant year. Out of this amount of Rs. 32,90,820 the principal amount was Rs. 17,50,000 and interest was an amount of Rs. 15,40,820.

The addition made by the Assessing Officer was deleted by the Commissioner of Income Tax (Appeals). While doing so, he recorded, inter alia, the findings as under:

(iii) As the appellant is in the business of money-lending there is no question of the principal amount written off to be treated as capital in nature.

(iv) As the appellant has in fact written off the amount in the books of account during the relevant previous year, the compromise deed was only a formality for write off. The decision of (2003) 86 ITD 193 is squarely applicable in the appellant''s case.

Before the Tribunal, as recorded in paragraph 5 of the impugned order, these findings recorded by the Commissioner of Income Tax (Appeals) had not been controverted by the Departmental representative during the course of hearing. The Tribunal came to the conclusion that there was no infirmity in the order of the Commissioner of Income Tax (Appeals) where-under the bad debt written off in the books of account of the assessee had been allowed as deduction u/s 36(1)(vii) of the Income Tax Act, 1961.

It is a settled position of law that the assessee does not have to establish the bad debt and he has merely indicate that the bad debt was written off in his books in the year in question. That has already been done.

A contention was sought to be raised before this court by the learned Counsel for the appellant that the principal amount of Rs. 17.50 lakhs which had been written off as bad debt represented a capital loss, inasmuch as, the assessee was not in the business of money-lending. However, such a plea cannot be raised at this stage, particularly, when the Commissioner of Income Tax (Appeals) has returned a clear finding that the assessee was in the business of money-lending and there was no question of treating the principal amount written off as capital in nature. The Commissioner of Income Tax (Appeals) had also noted that the interest received by the assessee from the said Sahani Silk Mills Pvt. Ltd. had been taxed as business income in the assessment years 1997-98 to 1999-2000. As a consequence, there is no doubt that the assessee was engaged in the business of money-lending.

Consequently, we find no infirmity with the impugned order. No substantial question of law arises for our consideration. The appeal is dismissed.