1990 (3) TMI 21 - HC - Income Tax

Court Upholds Tribunal's Decision on Bad Debts Write-Off

The Appellate Tribunal's finding that debts amounting to Rs. 40,254 due from two debtors had become irrecoverable was upheld by the court. The Tribunal's ... Bad Debt, Reference Issues Involved:1. Whether the Appellate Tribunal's finding that debts amounting to Rs. 40,254 due from C. L. Badrinarayanan and C. B. Lakshminarayanan Chettiar have become irrecoverable during the year of account and should be allowed as 'bad debts' in the assessment for the year 1971-72 is sustainable in law.2. Whether the Appellate Tribunal's finding is based on relevant materials and is a reasonable view to take on the facts obtaining in this case.Analysis of Judgment:Issue 1: Sustainability of Tribunal's Finding on Bad DebtsThe assessee, a firm engaged in money-lending and conducting chits, claimed an allowance for bad debts amounting to Rs. 40,254 for the assessment year 1971-72. The debts were due from C. L. Badrinarayanan and C. B. Lakshminarayanan Chettiar, who were adjudicated as insolvents. The Income-tax Officer disallowed the claim, deeming the write-off premature since the official receiver had not declared any dividend. The Appellate Assistant Commissioner upheld this disallowance, citing the lack of communication regarding the total assets and liabilities of the debtors and the non-finality of the insolvency proceedings. However, the Tribunal, considering the steps taken by the assessee, such as securing decrees and execution proceedings, and the affidavit of assets and liabilities filed by the insolvents, concluded that the liabilities exceeded the assets, leaving no reasonable prospect of recovery. The Tribunal upheld the claim for the write-off of the bad debt.Issue 2: Reasonableness and Relevance of Tribunal's FindingThe Tribunal's decision was based on the materials provided by the assessee, including the institution of suits, obtaining of decrees, execution proceedings, and the affidavit of assets and liabilities filed during the insolvency proceedings. The Tribunal noted that the properties attached by the assessee were overvalued by the debtors, and the actual realizable value was insufficient to cover the liabilities. The Tribunal concluded that the assessee had no reasonable prospect of recovering any amount from the debtors. The court found that the Tribunal had considered all relevant circumstances and materials to ascertain the properties available and the chances of recovery, thus making the Tribunal's view reasonable and sustainable.Reference to Precedents:The court examined several precedents cited by the Revenue, including Alagananda Mudaliar v. CIT, Deoki Nandan and Sons v. CIT, Nanak Chand Mamraj Mal v. CIT, and Chettinad Co. P. Ltd. v. CIT. These cases generally dealt with the timing and conditions under which a debt could be considered irrecoverable. The court distinguished these cases based on their specific facts and circumstances, emphasizing that the irrecoverability of a debt depends on a variety of factors, including the debtor's assets and liabilities and the prospects of recovery.Conclusion:The court concluded that the Tribunal's finding that the debts had become irrecoverable was based on a thorough examination of the facts and circumstances, including the debtor's assets and liabilities and the steps taken by the assessee. The court held that the Tribunal's decision was reasonable and supported by evidence. Consequently, the questions referred to the court were answered in the affirmative and against the Revenue, confirming the Tribunal's decision to allow the write-off of the bad debts.