Bad debt, disputed cess collections, and breach-damages were treated as allowable business deductions, not speculative losses.

Write-off of a debt was treated as allowable where the assessee had regular dealings, curtailed further advances on doubts over creditworthiness, recovered part of the balance, and made local enquiries and a legal notice before writing off the residue. Cess collected from customers and kept in a separate amanat account was not regarded as the assessee's trading receipt, because the levy was disputed and the sums were held subject to the dispute outcome. Payments made as damages for breach of oil and khal contracts were treated as business losses, not speculative losses, since section 43(5) applies to contracts settled otherwise than by delivery, not to liabilities arising after breach.

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Issues: (i) whether the write-off of Rs. 52,105 as bad debt was allowable; (ii) whether the cess collected from customers and credited to amanat account was a trading receipt taxable as income; (iii) whether the payments made on settlement of breached oil and khal contracts were speculative losses within the meaning of section 43(5) of the Income-tax Act, 1961.

Issue (i): whether the write-off of Rs. 52,105 as bad debt was allowable.

Analysis: The assessee had regular dealings with the debtor, had stopped further advances when creditworthiness became doubtful, had recovered part of the outstanding amount during the year, and had made local enquiries and served a legal notice before writing off the balance. The write-off was made after due enquiry in the ordinary course of business, and there was no finding that the entry was not genuine.

Conclusion: The bad debt claim was allowable in favour of the assessee.

Issue (ii): whether the cess collected from customers and credited to amanat account was a trading receipt taxable as income.

Analysis: The collections were made as cess on oil sales, the levy itself was in dispute, the amounts were not paid into the Government treasury, and the assessee maintained them in a separate account pending the outcome of the dispute. The receipt was impressed with an obligation to be applied according to the result of the dispute and did not represent an accretion to the assessee's own trading funds.

Conclusion: The cess collections were not taxable as the assessee's trading receipt and the addition was not sustainable in favour of the assessee.

Issue (iii): whether the payments made on settlement of breached oil and khal contracts were speculative losses within the meaning of section 43(5) of the Income-tax Act, 1961.

Analysis: The contracts did not culminate in performance by delivery and were instead broken because of circumstances beyond the assessee's control, after which damages were paid for breach. A settlement of a claim for damages arising from breach of contract is distinct from a contract settled otherwise than by delivery, and mere absence of delivery does not by itself attract section 43(5).

Conclusion: The payments were business losses and not speculative losses in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantial issues relating to bad debt, cess collections, and contract-damages, while the remaining minor disallowances were only partly sustained, resulting in partial relief to the assessee.

Ratio Decidendi: A payment made as damages for breach of contract is not a speculative transaction under section 43(5) merely because no delivery of goods took place; the provision applies to contracts settled otherwise than by delivery, not to liabilities arising after breach.

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