Bad-debt claims may be supported by audited accounts and surrounding circumstances when older direct records are unavailable.

Bad-debt disallowance was deleted where, although direct ledger evidence for older periods was unavailable, the assessee showed the debts as sundry debtors in audited balance sheets and maintained consistent treatment in earlier years; the Tribunal treated these surrounding circumstances and human probabilities as sufficient to support the claim that the debts had earlier been taken into account in computing income. The additional ground on the nature of land sold required factual verification because the agricultural character of the land was not adequately established on the existing record, so the matter was remanded to the AO for fresh adjudication under the statutory definition of agricultural land.

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Issues: (i) whether the disallowance of bad debts for the relevant assessment years was sustainable where the assessee relied on audited accounts and surrounding circumstances to show that the debts had earlier been offered to tax; (ii) whether the additional ground regarding the nature of the land sold required fresh examination.

Issue (i): whether the disallowance of bad debts for the relevant assessment years was sustainable where the assessee relied on audited accounts and surrounding circumstances to show that the debts had earlier been offered to tax.

Analysis: The claim for bad debt was tested against the requirement that the debt must have been taken into account in computing income of earlier years. Direct ledger evidence for some old periods was unavailable, but the assessee had shown the amounts as sundry debtors in audited balance sheets and the same treatment had been consistently reflected in earlier years. The Tribunal treated these surrounding circumstances as relevant corroboration and applied the test of human probabilities while also noting the earlier acceptance of similar treatment in connected years.

Conclusion: The disallowance of bad debts was deleted and the issue was decided in favour of the assessee.

Issue (ii): whether the additional ground regarding the nature of the land sold required fresh examination.

Analysis: The Tribunal held that the character of the land as agricultural depended on factual material that was not adequately available in the orders of the lower authorities. The issue therefore required factual verification by the Assessing Officer under the statutory definition of agricultural land.

Conclusion: The issue was remanded to the Assessing Officer for fresh adjudication, and relief was granted for statistical purposes.

Final Conclusion: The bad-debt disallowance was set aside, while the agricultural-land issue was restored for fresh consideration, resulting in partial relief to the assessee.

Ratio Decidendi: Where direct evidence is unavailable for an old bad-debt claim, consistent treatment in audited accounts and other surrounding circumstances may be relied upon to satisfy the requirement that the debt had earlier been taken into account in computing income.

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