ITAT Bangalore Upholds Bad Debt Deduction for Advances Written Off in Financing Business – Section 36(1)(vii) Claim Sustained

Case Overview

ACIT Vs Agnus Holdings Private Limited (ITAT Bangalore)
Assessment Year: 2018-19

The Bangalore Bench of the Income Tax Appellate Tribunal ruled against the Revenue and confirmed the deletion of a disallowance of Rs. 2.25 crore representing advances written off by the assessee company. The Tribunal upheld the order passed by the Commissioner of Income Tax (Appeals), finding no merit in the grounds raised by the Revenue.

Background and Nature of the Assessee's Business

Agnus Holdings Private Limited, the assessee in the present case, was engaged in the business of investment, finance, and trading in shares. The assessee had filed its return of income for Assessment Year 2018-19 declaring a loss.

The matter came up for scrutiny following a reopening of assessment under Section 147 of the Income-tax Act, 1961. In the course of the reassessment proceedings, the Assessing Officer examined the claim pertaining to advances that had been written off by the assessee and proceeded to disallow the same.

Assessing Officer's Position

The Assessing Officer took the view that:

• The assessee had failed to demonstrate that the advances in question were extended in the course of its business activities.
• The advances were characterized as capital in nature, thereby making them ineligible for deduction as bad debts under Section 36(1)(vii) of the Income-tax Act, 1961.
• Accordingly, a disallowance of Rs. 2.25 crore was made in the assessment order.

Assessee's Contentions Before CIT(A)

The assessee challenged the disallowance before the Commissioner of Income Tax (Appeals) and placed the following submissions on record: