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Issues Involved:
1. Justification of the assessment of Rs. 86,000 as cash reintroduced into the business. 2. Disallowance of the bad debt of Rs. 14,518. Detailed Analysis: 1. Justification of the Assessment of Rs. 86,000 as Cash Reintroduced into the Business: The case revolves around the assessment made upon a Hindu undivided family for the year 1946-47. The Income-tax Officer discovered cash credits in the personal account of Rai Bahadur Balmiki Prasad Singh, the father of the assessee, who is the karta of the undivided family. The assessee explained that the cash credits were reintroduced into the business from previous withdrawals. However, the Income-tax Officer rejected this explanation, suspecting that the withdrawn amounts were converted into gold during the war and later sold at higher prices. Consequently, the Officer added Rs. 86,000 to the assessee's income. The Appellate Tribunal, while accepting that the assessee did not trade in gold and silver, doubted the credibility of the home chest account, leading to the disallowance of the explanation regarding the source of the cash credit. The Tribunal stated: "It is clear from the assessee's own statement of figures filed that he has introduced Rs. 1,95,250 as against Rs. 1,90,000 only withdrawn during the period so that it is evident that these withdrawals are not always kept intact for subsequent introductions." However, upon review, it was found that the Tribunal made an arithmetical error. The actual figures showed that from the year 1997 to 2000, cash withdrawn was Rs. 1,93,500 while the cash credit was Rs. 1,07,350. Adding Rs. 86,000 to the cash credit would total Rs. 1,93,350, which aligns with the cash withdrawn. The Tribunal's miscalculation led to the incorrect disallowance of the assessee's explanation. Therefore, the High Court held that there was no material to justify the assessment of Rs. 86,000 and answered this question in favor of the assessee. 2. Disallowance of the Bad Debt of Rs. 14,518: The assessee claimed Rs. 14,518 as a bad debt under Section 10(2)(xi) of the Income-tax Act, arguing that the debt became time-barred within the accounting year 1945-46. The debt originated from a decree passed on 16-9-1932, and the last execution petition was dismissed on 8-12-1945. The Income-tax Officer and the Appellate Assistant Commissioner found that the debt became irrecoverable when the debtor's properties were sold in execution of a mortgage decree, four years before the accounting year. The Tribunal rejected the claim, stating: "It has not been shown to us that the debt was good and recoverable at the commencement of the period which is necessary to show." However, the High Court found this reasoning flawed, emphasizing that the debt's status at the commencement of the accounting year was not the correct criterion. The debt became time-barred within the accounting year, and the last execution petition was dismissed during this period, indicating that the debt became bad and irrecoverable then. The High Court noted that the assessee had a reasonable expectation of recovering the debt until the final dismissal of the execution petition. The Tribunal's requirement for the debt to be shown as good at the commencement of the year was a misdirection in law. Therefore, the High Court held that the assessee was entitled to the allowance of Rs. 14,518 as a bad debt within the meaning of Section 10(2)(xi) of the Income-tax Act and answered this question in favor of the assessee. Conclusion: Both questions were answered in favor of the assessee. The High Court found no material to justify the assessment of Rs. 86,000 and held that the bad debt of Rs. 14,518 should be allowed as a deduction. The Income-tax Department was directed to pay the costs of the reference, with a hearing fee of Rs. 250.
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