TaxTMI 
TaxTMI 
2007 (3) TMI 185
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....mmissioner of Income-tax (Appeals) rejecting the assessee's claim of deduction of Rs. 4,15,944 as bad debt under section 36(2) of the Income-tax Act, 1961, the Appellate Tribunal is right in law in allowing the same as trading loss incurred by the firm under section 37 of the Act? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the agreement dated October 1, 1973, between the principal M/s. Central Distillery and Chemical Works Ltd., and the assessee-firm stood modified by the principal's letter dated October 31, 1973, so as to saddle the assessee firm with the principal's old due from a third party, M/s. Nagaland Liquor Stores transforming it as the assessee's own liability to....
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.... the Tribunal in the statement of case, are that the assessee was a partnership firm working as sole-selling agent of M/s. Central Distillery and Chemical Works Ltd. (for short "the principal") for sale of Indian made foreign liquor. While filing the return for the assessment year in question, the assessee claimed bad debt to the tune of Rs. 4,35,243 in respect of the following constituents : (Rs.) 14,500 4,15,944 4,622 177 Ramesh Films, Gauhati M/s. Nagaland Liquor Store, Dhampur, Nagaland Officer Commanding Sikh Light Infantry Regiment. Officer Commanding 235 Rocket Battery. 1. 2. 3. 4. 4,35,243 3 The claim made by the assessee was disallowed by the Assessing Officer. The orde....
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....ich fotced it to close its business. As the amount could not be recovered by the principal in the absence of assets to secure the same, it was debited to the account of the assessee. The assessee referred to and relied upon the clause as agreed to between the principal and the assessee vide letter dated October 31, 1973, to substantiate his claim. The same is extracted below : "This is in continuation of our letter of agreement dated October 1, 1973. It is clearly understood that all the outstandings which arise and become due on account of our supplies of liquor to the parties through your agencies and in case that become irrecoverable you will be solely responsible for that and it is in consideration of this that the commission is being....
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....pective contentions we are not inclined to agree with the contentions of the Revenue and support the findings of the Commissioner of Income-tax (Appeals). Although we hold that the claim for bad debt raised as an alternative plea by the assessee is not made out in law and is, therefore, liable to be rejected, we cannot but uphold the claim for trading loss. We agree with the Commissioner of Income-tax that for a bad debt to succeed the amount of bad debt must have formed a part of the assessed turn over as required under section 36(2). Since the amount had never formed a part of the assessed turnover of the assessee, the amount was not a debt and could not be a bad debt in the hand of the assessee. Therefore, the claim of the assessee for a....
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....l the issue remains as to whether the assessee is entitled to deduction of Rs. 4,15,944 as a business loss on account of amount irrecoverable from M/s. Nagaland Liquor Store ? 7 In the present case, it is not in dispute that the assessee was working as sole-selling agent of the principal. It has also come on record that for carrying out its obligation as a sole-selling agent, commission was being paid to it by the principal. To earn commission, the assessee had to carry out certain activities and share certain risk, obligation and responsibility. In the present case, it was agreed upon between the parties by way of communication that the recovery of outstanding dues on account of supply of liquor to parties through the agency of the assess....