Unreliable accounts, hire-purchase depreciation, and bad debt timing: tax deductions depend on evidence and realised value of security.

Income may be estimated from surrounding circumstances where petrol sales accounts are unreliable and do not permit verification of actual receipts. A hire-purchase arrangement is treated as a sale or agreement to sell with instalments, not as machinery let on hire, so the statutory depreciation allowance for hired machinery does not apply. A claimed bad debt arising from repossessed vehicle instalments cannot be allowed until the security has been realised or valued, because the extent of recovery remains unknown. The commentary states that, on these principles, the assessee obtained no relief on any of the issues discussed.

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Issues: (i) Whether the addition to profits from the sale of petrol could be sustained when the accounts were unreliable; (ii) whether depreciation on motor lorries disposed of under a hire-purchase arrangement was admissible under the statutory allowance for machinery let on hire; and (iii) whether the claimed amount could be allowed as a bad debt before the repossessed vehicle had been realised or valued.

Issue (i): Whether the addition to profits from the sale of petrol could be sustained when the accounts were unreliable

Analysis: The accounts were found to be kept in a manner that made it impossible to ascertain the actual sales, as counterfoils were not kept and receipts were not issued. In such a situation, the taxing authority was entitled to consider surrounding circumstances and deduce income from them.

Conclusion: The addition to profits was justified and was upheld against the assessee.

Issue (ii): Whether depreciation on motor lorries disposed of under a hire-purchase arrangement was admissible under the statutory allowance for machinery let on hire

Analysis: The claim for depreciation was belated and unsupported by accounts or relevant figures. More importantly, a hire-purchase arrangement was treated as a sale or agreement to sell with instalments, not as a case of machinery let on hire. The statutory allowance for depreciation on machinery let on hire therefore did not apply.

Conclusion: Depreciation was not admissible and the claim failed against the assessee.

Issue (iii): Whether the claimed amount could be allowed as a bad debt before the repossessed vehicle had been realised or valued

Analysis: The repossessed vehicle had not been sold or otherwise valued, and without knowing its realisable value it was not possible to say that the unpaid instalments had become a bad debt. The taxing authority was right in declining the allowance until the recovered property had been dealt with.

Conclusion: The claim for bad debt was disallowed against the assessee.

Final Conclusion: The application failed in entirety, and the assessee obtained no relief on any of the substantive issues decided.

Ratio Decidendi: A hire-purchase transaction is not machinery let on hire for depreciation purposes, income may be estimated from surrounding circumstances where accounts are unreliable, and a debt cannot be treated as bad until the value of repossessed security has been ascertained or realised.

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