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Issues:
1. Allowance of bad debts amounting to Rs. 1,49,433 for the assessment year 1985-86. Analysis: The respondent-assessee claimed a bad debt of Rs. 1,49,433 for the assessment year in question, relating to advances made to a company. The Assessing Officer rejected the claim, stating that no legal action was taken against the debtor, hence the bad debt claim could not be allowed. This decision was upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal accepted the claim of the respondent-assessee, noting that efforts were made to recover the amount, but the debtor was in a financial crisis and unable to repay. The Tribunal cited a Bombay High Court case emphasizing that the determination of a bad debt is an objective fact and legal action against the debtor is not a prerequisite for writing off a debt. The Tribunal directed the Assessing Officer to allow the bad debt claim. The High Court observed that the respondent-assessee, aged about 88 years, had made genuine efforts to recover the loan amount, which was given as a loan to the debtor company in 1977. The Court agreed with the Tribunal that the debt had become irrecoverable, and the respondent-assessee had rightfully claimed it as a bad debt. The Court emphasized that the decision not to initiate legal proceedings does not invalidate the bad debt claim if there is no chance of recovery. The Court cited a case to support the Tribunal's decision and reiterated that the onus is on the assessee to establish the irrecoverability of the debt, not necessarily through legal action. Referring to other legal precedents, the Court highlighted that the requirement for a debt to be considered bad or irrecoverable does not mandate demonstrative proof or legal action against the debtor. The Court endorsed the principles laid down by various High Courts, including the Bombay High Court and the Gujarat High Court, stating that the circumstances of the case aligned with these principles. Consequently, the Court found no legal infirmity in the Tribunal's decision to allow the bad debt claim. Therefore, the Court answered the question in favor of the assessee and against the Revenue, with no order as to costs.
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