1974 (6) TMI 22 - HC - Income Tax

Court affirms Tribunal decision in favor of assessee for bad debt claim

The Court upheld the Tribunal's decision, ruling in favor of the assessee for the assessment year 1953-54. The claim for a written-off amount of Rs. ... Business Expenditure Issues:Assessment of bad debt under section 10(2)(xi) of the Indian Income-tax Act, 1922. Claiming the amount as business loss under section 10(1) of the Act.Analysis:The judgment pertains to the assessment year 1953-54, involving a claim for a written-off amount of Rs. 58,312 as a bad debt under section 10(2)(xi) of the Indian Income-tax Act, 1922. The assessee, engaged in the gunny and jute goods business, had given advances to an under-broker, P. J. Doshi, in anticipation of accruing brokerage. Due to Doshi's illness and subsequent death, the amount was deemed irrecoverable. The Income-tax Officer initially disallowed the claim, citing the cash accounting method followed by the assessee. However, the Tribunal accepted the assessee's argument that the amount should be allowed as a business loss under section 10(1) due to commercial expediency and customary practices in the industry.The Tribunal acknowledged the nature of the assessee's business, the substantial brokerage income, and the customary practice of providing advances to under-brokers. The Tribunal found it commercially prudent to write off the amount as a loss in the relevant year, considering the circumstances surrounding Doshi's death. The revenue contended that under a cash system of accounting, expenses and losses incurred in prior years could not be deducted in the current assessment year. However, the Court emphasized that the claim was not for under-brokerage paid or advances made but was treated as a loss due to Doshi's death, which rendered the amount irrecoverable.The Court highlighted that there was no suggestion of an improper motive in treating the amount as a loss in the relevant year. The judgment emphasized that the claim was justified as a business loss arising from the death of Doshi, without any indication that Doshi had passed away long before the relevant year. Ultimately, the Court upheld the Tribunal's decision, ruling in favor of the assessee and granting costs for the reference. Justice Janah concurred with the decision, and the question was answered in the affirmative, affirming the Tribunal's conclusion.