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Issues: (i) Whether the non-recoverable exhibition expenditure written off could be disallowed as bad debt but allowed as business loss despite the assessee following cash system of accounting. (ii) Whether, where the assessee objects to the stamp valuation, a reference to the Valuation Officer is required under section 50C. (iii) Whether the sale proceeds of a flat could be treated as unexplained cash credit under section 68 when supported by the sale agreement.
Issue (i): Whether the non-recoverable exhibition expenditure written off could be disallowed as bad debt but allowed as business loss despite the assessee following cash system of accounting.
Analysis: The amount was incurred by the assessee in the course of its regular business practice on behalf of principals for exhibition-related activities. It was not allowable as bad debt because the assessee followed cash system of accounting and the amount did not satisfy the statutory conditions for deduction as a debt. However, the loss arose from a business transaction already undertaken in the course of carrying on the business, and became ascertained only when recovery from the principal became impossible due to financial distress and termination of the joint venture.
Conclusion: The write-off was not allowable as bad debt, but it was allowable as business loss in favour of the assessee.
Issue (ii): Whether, where the assessee objects to the stamp valuation, a reference to the Valuation Officer is required under section 50C.
Analysis: Once the assessee disputes the value adopted by the stamp valuation authority and substantiates the objection with an approved valuer's report, the Assessing Officer cannot mechanically adopt the stamp value. The scheme of section 50C requires determination of fair market value in the manner provided by subsection (2), and the power to refer the matter is to be exercised in accordance with that statutory mandate.
Conclusion: The matter was required to be referred to the Valuation Officer and the issue was restored to the Assessing Officer in favour of the assessee.
Issue (iii): Whether the sale proceeds of a flat could be treated as unexplained cash credit under section 68 when supported by the sale agreement.
Analysis: The assessee produced the sale agreement showing receipt of consideration on transfer of the property. Once the receipt was traceable to an identified sale transaction, it could not be characterised as an unexplained credit. The contrary view taken in assessment and appellate proceedings was unsustainable.
Conclusion: The addition under section 68 was deleted in favour of the assessee.
Final Conclusion: The assessee succeeded on the business-loss claim and on the section 68 addition, while the section 50C issue was remitted for fresh determination, leaving the appeals partly allowed overall.
Ratio Decidendi: A loss arising from an irrecoverable business-related payment made in the ordinary course of trade may be deductible as business loss when recovery becomes impossible, and where the assessee objects to stamp valuation under section 50C, fair market value must be determined in the statutory manner before adopting the stamp value.
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