Bad debt versus advance for expenditure: factual appreciation meant no referable question of law arose under income-tax reference provisions.

An amount written off was treated as an advance for expenditure rather than a bad debt, and the Tribunal upheld the write-off on the facts after legal advice was obtained and the relevant books remained open. On that footing, the dispute turned on factual appreciation rather than any unsettled legal principle, so no referable question of law arose under section 256(2) of the Income-tax Act, 1961. The reference application was therefore rejected, with the issue decided in favour of the assessee and against the Revenue.

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Issues: Whether the amount written off by the assessee was deductible as a bad debt, or was in substance an advance for expenditure, and whether any referable question of law arose under section 256(2) of the Income-tax Act, 1961.

Analysis: The Tribunal recorded that the amount was not a bad debt in the strict sense. It held that what had been written off was only an advance for expenditure, and that the write-off was justified on the facts after legal advice had been obtained and the books for the relevant year remained open. On that basis, the Tribunal treated the deletion as one based on factual appreciation rather than on any disputed legal principle. Since the Commissioner's application sought a reference on that factual finding, the matter did not give rise to a question of law.

Conclusion: No question of law arose for reference. The application under section 256(2) of the Income-tax Act, 1961 was rejected, and the issue was decided against the Revenue and in favour of the assessee.

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