INCOME TAX ACT, 1961

Section 36(1)(vii)

Business deduction under section 36(1)(vii) - Assessee advanced interest bearing loans to its subsidiary company which became loss making company - Allowability -

Assessee had advanced loans to its subsidiary company and claimed that the subsidiary company became loss making company and assessee took a decision to write off the loan and claim the same as bad debts. The said claim has been denied by AO on the counts that assessee was not in business of giving loans and, therefore, conditions of section 36(2) were not satisfied and that claim of assessee of loan becoming bad debts was not genuine as assessee was knowing that loan was not recoverable. CIT(A) confirmed the decision of AO, however, Tribunal held that claim of assessee was allowable. Held: Decision of Supreme Court in the case of SA. Builders Ltd. v. CIT(Appeals), Chandigarh [(2007) 158 Taxman 74 (SC) : 2007 TaxPub(DT) 0833 (SC)] holds the field on the issue of the assessee not being in the business of giving loans. In the decision Supreme Court in the case of TRF Ltd. v. CIT [(2010) 190 Taxman 391 (SC) : 2010 TaxPub(DT) 1481 (SC)], it is laid down that after the amendment of 1-4-1989, it was not necessary for assessee to establish that debt has become irrecoverable and if assessee writes off the same as bad debts, it would serve the purpose. Thus, appeal of assessee was dismissed.

REFERRED : TRF Ltd. v. CIT (2010) 190 Taxman 391 (SC) : 2010 TaxPub(DT) 1481 (SC), SA. Builders Ltd. v. CIT (2007) 158 Taxman 74 (SC) : 2007 TaxPub(DT) 833 (SC), CIT v. V. Ramakrishna & Sons Limited (2010) 326 ITR 315 (Mad) : 2010 TaxPub(DT) 1243 (Mad-HC) and CIT v. Star Chemicals (Bombay) (P) Ltd. (2008) 220 CTR 319 (Bombay) : 2009 TaxPub(DT) 353 (Bom-HC).

FAVOUR : In assessee's favour.

A.Y. :

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