Facts of the Case

The assessee, GE Money Financial Services Pvt. Ltd., a non-banking financial company engaged in financing activities, had claimed deduction in respect of loss incurred on the sale of its loan portfolio. The Revenue disputed the tax treatment accorded by the assessee and preferred appeals before the High Court.

The assessee relied upon Section 36(2)(i) of the Income Tax Act and also placed reliance on an identical treatment accepted in the previous assessment year (A.Y. 2004-05), where the Tribunal had already upheld similar treatment.

 Issues Involved

  1. Whether loss arising on sale of loan portfolio is allowable as deduction under Section 36(2)(i) of the Income Tax Act?
  2. Whether such loss falls within the capital stream or revenue stream for tax purposes?
  3. Whether the Revenue could challenge an identical treatment already accepted in earlier assessment years?

 Petitioner’s Arguments (Revenue)

The Revenue contended that:

  • The loss on sale of the loan portfolio could not be treated as deductible under Section 36(2)(i).
  • Such treatment was not in accordance with the statutory provisions governing bad debts.
  • The amount in question should be brought to tax as income rather than treated as an allowable loss.

 Respondent’s Arguments (Assessee)

The assessee argued that:

  • The claim squarely fell within Section 36(2)(i) of the Income Tax Act.
  • The loan assets formed part of the ordinary business of money-lending and financing.
  • Similar deduction treatment had already been accepted by the Tribunal in the earlier assessment year (A.Y. 2004-05).
  • The principle of consistency required the Revenue to maintain uniformity in tax treatment.

 Court Findings / Court Order

The Delhi High Court observed that the assessee had relied upon an identical treatment of a similar amount in the previous assessment year and that the Tribunal had accepted the claim.

The Court held that, considering the factual and legal position, no substantial question of law arose for consideration. Consequently, the appeals filed by the Revenue were dismissed.

 Important Clarification

The judgment clarifies that where loan portfolio transactions are intrinsically connected to the ordinary course of financing or money-lending business, and where similar treatment has already been judicially recognized, the High Court may decline interference in absence of any substantial question of law.

The ruling reinforces the importance of consistency in tax treatment and strengthens the applicability of Section 36(2)(i) in relation to bad debt-related deductions.

 Sections Involved

  • Section 36(2)(i), Income Tax Act, 1961
  • Deduction in respect of bad debts or part thereof
  • Treatment of loan portfolio loss in banking and money-lending business

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:8953-DB/SRB01112017ITA2252017_125407.pdf

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