1976 (6) TMI 40 - AT - Income Tax

Tribunal allows appeal, treats bad debts as trading losses.

The Tribunal allowed the appellant's appeal, considering the bad debts as irrecoverable trading losses for the assessment year. The debts due from various ... - Issues:1. Deductibility of bad debts claimed by the assessee in the relevant accounting year.2. Whether the bad debts can be considered as a trading loss under section 29 or a bad debt under section 36.3. Determination of irrecoverability of debts due to distribution agents and advertisers.4. Consideration of whether the debt has been taken into account in computing the income of the assessee.Analysis:The appellant firm, which printed and published Malayalam magazines, took over the business activity from Radha Printers, including debts due from distributors, agents, and advertisers. The appellant claimed bad debts in the accounting year, but later adjusted for time-barred debts. The Income Tax Officer (ITO) disallowed the claim due to lack of proof of bad debts in the relevant year. The Appellate Assistant Commissioner (AAC) upheld the disallowance, adding that the bad debt was not accounted for in previous years.The appellant argued that the bad debts should be deductible as a trading loss under section 29 or as a bad debt under section 36. The Tribunal examined the nature of debts due from various agents and advertisers, mostly small amounts owed by individuals in different locations. Considering the difficulty in recovery from these small traders and advertisers, the Tribunal found the debts to be irrecoverable and allowed them as a trading loss for the assessment year.Regarding section 36, the Departmental Representative contended that the debt was not accounted for by the appellant but by Radha Printers. The appellant cited a judgment allowing a successor-assessee to claim relief under section 36. However, since the Tribunal had already allowed the claim as a trading loss, it did not delve into this argument further.In conclusion, the Tribunal allowed the appeal, holding a specific amount as a deductible item in the computation of income from business for the relevant assessment year.