ITAT Approves ₹5 Crore Bad Debt Claim on Loan to Ramalinga Raju

The Income Tax Appellate Tribunal (ITAT), Mumbai, has allowed DSP Adiko Holdings Pvt. Ltd. to claim ₹5 crore as a bad debt or business loss, as per the news reports. The amount represents an irrecoverable portion of a ₹10 crore loan granted to Byrraju Ramalinga Raju, founder of Satyam Computer Services, during FY 2008-09 as part of the NBFC's routine lending operations.

ITAT Rules in Favour of DSP Adiko Holdings in ₹5 Crore Tax Dispute

The dispute arose during Assessment Year 2017-18 when the company claimed the ₹5 crore loss after a Bombay High Court consent decree in April 2016 permitted recovery of only ₹5 crore from the total loan. The Assessing Officer (AO) rejected the claim, treating the loan’s principal component as a capital transaction, citing the Supreme Court’s Mahindra & Mahindra verdict.

However, the ITAT bench ruled that the AO's reliance on Mahindra & Mahindra was incorrect since that case dealt with the tax treatment of waived loans from the borrower’s side, not lenders. The tribunal noted that the loan was extended in the normal course of NBFC business, qualifying it for deduction under Section 36(1)(vii) or Section 28(i) of the Income Tax Act.

NBFC's Lending Loss Found Deductible Under Income Tax Act

The tribunal highlighted that once a court confirms partial irrecoverability of a loan granted during business operations, the lender is entitled to treat the balance as a bad debt or business loss. In this case, the loss stemmed from legal proceedings and a final court order, reinforcing the commercial nature of the transaction.

Read More: Uttar Pradesh MSME Loans Surge More Than 20% to ₹2.48 Trillion in FY25!

Final Verdict Validates NBFC Lending Practices

The ITAT directed the deletion of the ₹5 crore disallowance, accepting DSP Adiko Holdings’ position in full. This ruling reinforces that NBFCs can claim deductions for irrecoverable loans, provided such transactions are part of their regular lending activities and backed by legal outcomes.

Conclusion

With the ITAT’s decision, DSP Adiko Holdings secured a favourable outcome in a significant ₹5 crore tax case. The verdict affirms that bad debts from legitimate NBFC lending activity, if legally confirmed as irrecoverable, are valid tax deductions under Indian law.

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