NBFC submits PAN of Parties from whom it claimed Bad Debts: ITAT upholds Income Tax Deduction [Read Order]

In a recent ruling, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the income tax deduction on bad debts of a registered NBFC, after it furnished PAN and supporting details of the parties involved.

The appeal was filed by the Assistant Commissioner of Income Tax, challenging the order of the Commissioner of Income Tax dated 7 July 2022, which had partly allowed the assessee’s appeal and deleted major additions made by the AO.

The AO had completed the assessment under Section143(3) of the Income Tax Act on 10 December 2018, making an addition of Rs. 9,94,000/-, Rs.2,75,00,000/-, and Rs. 11,55,000/- respectively.

The department's counsel argued that the assessee company was engaged in providing accommodation entries, as evidenced by the immediate debit of credited amounts in its bank account, and that the CIT(A) had erred in deleting the estimated commission income at 2% without appreciating the incriminating material and statements recorded during the investigation.

It was also contended that the bad debts claimed did not arise in the regular course of business and therefore did not satisfy the conditions under Section 36(1)(vii) of the Act

The assessee, Respondent, The Index Securities & Research Pvt., relied on its status as a registered NBFC, audited financial statements, consistent business income from lending activities, and past assessments accepted under Section 143(3). The assessee also placed reliance on earlier Tribunal and High Court decisions, where allegations of accommodation entries against group entities had already been rejected

The Tribunal noted that the assessee had been carrying genuine lending and investment activities over several years and had earned substantial interest income, which was duly reflected in its audited accounts. It was observed that assesee company was not a paper company.

With respect to the disallowance of bad debts, the Tribunal accepted the finding of the CIT(A) that the assessee had furnished necessary details such as PAN, addresses, and supporting documents of the debtors, and that the write-off was duly reflected in the books of account. Accordingly, the conditions for claiming bad debts were held to be satisfied

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