TaxTMI 
TaxTMI 
1989 (4) TMI 129
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....ied in the Order. The Central Government has prohibited a manufacturer of tractors after the commencement of that Order to sell or otherwise dispose of any tractor except in accordance with the Order made by the Controller and various regulatory provisions were made in that Order, which includes the appointment of dealers and the relationship with the manufacturer and the ultimate buyer. 2. The assessee appointed one Shri S.S. Upadhyay as a dealer for theterritoryofMuzaffarnagarunder a buyer agreement dt.16th March, 1972. The buyer was known as Jai Kisan for the purpose of the agreement. The obligation of the buyer is to promote sales of tractors by popularising it among the users. Under a specific clause the buyer was to restrict himself from booking orders from the said customers and accepting advances from them except to the extent notified by the assessee from time to time. Under the same cl. 10, it was also made the responsibility of the buyer to refund the deposits collected from the customers in the event of any litigation arising out of the non-refund of the deposits. Under cl. 17 of the agreement, the buyer was not authorised to act as the legal representative of the as....
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....ant to this arrangement arrived at on 11th June, 1976, the assessee had supplied tractors to the farmers by adjusting the advance payments made by the farmers to the dealer and in the process there was a sum of Rs. 2,89,939 due to the assessee from the farmers being the money collected and misappropriated by the dealer Shri S.S. Upadhyay. As the assessee was unable to recover this sum from the dealer, as he was declared insolvent in the meantime, and after resorting to such legal steps as were open to the assessee, the amount was written off as a bad debt and was claimed as a deduction in the assessment year under appeal. 3. The IAC disallowed this claim on the ground that the dealer Shri Upadhyay, who was appointed by the assessee, could not have acted contrary to the instructions of the assessee and in any case, there was no evidence to establish to the contrary. Further the assessee though filed a suit for the recovery of this sum in Delhi High Court, did not pursue it. Therefore the amount of Rs. 2,89,939 did not become either a bad debt or a loss to the assessee-company. He therefore disallowed it. 4. Against this disallowance, the assessee filed an appeal before the CIT....
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....the tractors the farmers, it knew that the money was collected by its dealer and misappropriated by him. When it agreed to supply the tractors, though under compulsion from the Governmental authorities, the assessee-company was entertaining the hope that it would be able to realise the funds through the suits to be filed by the farmers against Shri Upadhyay. That was the reason why the Collector, Muzaffarnagar who had become a party to the Minutes, agreed to prevail upon the District Judge to take up these suits as pauper suits. Though the suits were decreed in favour of the farmers, these decrees could not be executed against the dealer Shri Upadhyay because the dealer had no assets. The assessee also entered into an agreement called Memorandum of Agreement with each of the farmers under which the amount advanced by them to the dealer Shri Upadhyay and under which the assessee agreed to advance a sum equal to the sum advanced by the farmers to the dealer as a loan against the security of the tractors and the farmers would file civil suits for the recovery of the money against the dealer and would endorse those decrees as and when obtained to the assessee and that the farmers would....
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.... which could be produced before the Delhi High Court, which did not have the effect to shift the liability to pay the sum from the dealer to the Government of India. He therefore advised that it would not be worthwhile for the assessee to pursue its claim in the Delhi High Court as that would amount spending lots of money against indefensible suits. He also advised that it was not possible for the assessee to obtain decrees against the farmers because they have already obtained decrees against Shri Upadhyay for the same amount and the amount was so inter-twined and interlinked with the amount collected by Shri Upadhyay that it would be highly unlikely for any Court to pass another decree against the farmers. On the basis of this legal advice a decision was taken by the assessee to write off these amounts. This event had taken place in the accounting year itself. So the sequence of events clearly establish that the assessee was forced to accept this loss which has got intimate connection with the business it carrying on. It cannot therefore be said that this loss is not a business loss or de hors the business. It is also not the case of the authorities below. While the IAC held that....