The Delhi High Court has held that bad debt deduction under Section 36 of the Income Tax Act allowed only for banking or money-lending businesses.
The bench of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma has observed that the allowance in respect of bad debts is allowable only if the debt was taken into account for computing the income of the assessee in the previous year in which the amount is written of or prior previous years; or represents money lent in the ordinary course of business of banking or money lending.
The respondent/Assessee had filed its return of income declaring a loss of Rs. 43,61,059. However, the Assessee filed a revised return on 29.03.2017 declaring a loss. The Assessee’s return was picked up for scrutiny and the assessment proceedings culminated in an assessment order passed under Section 143(3) of the Income Tax Act, 1961. The Assessing Officer (AO) assessed the Assessee’s income by making the various additions.
The assessee preferred the appeal before the CIT(A). The CIT(A) did not interfere with the additions made by the AO towards long term capital gains amounting to Rs. 27,38,96,372, and disallowance of bad debts amounting to Rs. 27,76,90,000. However, insofar as disallowance of legal charges is concerned, the learned CIT(A) restricted the same to Rs. 28,60,000.
The Assessee preferred an appeal before the ITAT. The Assessee’s grievance before the ITAT was on three fronts: (a) addition of Rs. 27,38,96,372/- on account of long-term capital gains; (b) addition of Rs. 27,76,90,000/- on account of bad debts; and, (c) addition of Rs.28,60,000/- towards legal expenses.
The ITAT did not interfere with the addition of ₹27,38,96,372/- on account of long-term capital gains and ₹28,60,000/- on account of disallowance of legal expenses. However, the ITAT set aside the addition made on account of disallowance of bad debts amounting to Rs. 27,76,90,000.
The court allowed the appeal and ruled in favour of the department and against the Assessee.
Case Details
Case Title: PCIT Versus WGF Financial Services Pvt. Ltd.
Case No.: ITA 184/2022
Date: 25.02.2025
Counsel For Petitioner: Puneet Rai
Counsel For Respondent: Shreya Jain
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