The Mumbai bench of the Income Tax Appellate Tribunal (ITAT), while allowing relief to IndusInd Bank has held that the bad debts arising from the credit card business shall be allowable as business loss, deductible under section 36(1)(vii) of the Income Tax Act, 1961.
The assessee Bank had been deriving huge income of Rs.152.32 crores from its total credit card business of Rs.2030 Crores. Out of the said business, Rs.8.34 Crores had turned bad which the assessee had claimed as bad debts u/s.36(1)(vii) of the Income Tax Act. The assessee had offered income from credit card business as income under the head “profits and gains of business or profession” and which has been taxed as such by the AO. However, the claim of bad debts as business loss was rejected.
Noting that the satisfaction of the requirement of offering income in terms of Section 36(2) of the Income Tax Act has been done by the assessee, the Tribunal comprising Shri Vikas Awasthy, Judicial Member & Shri M Balaganesh, Accountant Member held that the claim of bad debts to be routed through provision for bad and doubtful debts account would be relevant if the provision is created u/s.36(1)(viia) of the Income Tax Act.
“The assessee duly drew our attention from the computation of income that total amount of bad debts of Rs.179,25,17,964/- is reduced by the amount of brought forward provision for bad and doubtful debts claimed u/s.36(1)(viia) of the Act in the preceding previous year of Rs.159,78,14,026/- and only the balance amount of Rs.19,47,03,938/- was claimed as deduction as bad debts u/s.36(1)(vii) of the Act,” the ITAT said.
After perusing the documents, the ITAT observed that “the bad debts arising from credit card business is part and parcel of total bad debts reflected by the assessee. Hence, we have no hesitation to hold that bad debts arising from credit card business would be part and parcel of loss arising in the course of banking business and hence liable as deduction u/s.36(1)(vii) of the Act.”
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