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Issues:
Assessment of bad debt deduction under section 36 of the Income-tax Act, 1961 for the assessment year 1980-81. Detailed Analysis: The case involved an assessee, a limited company engaged in the manufacture of tyres and tubes, who exported goods to parties in Turkey between 1976 and 1977, amounting to Rs. 2,72,19,587. Due to a ban on remittances imposed by the Government of Turkey, the amount deposited in the Central Bank of Turkey remained unrecoverable. The assessee wrote off a sum of Rs. 121 lakhs as bad debt in the calendar year 1979. The Income-tax Officer initially rejected the bad debt claim, citing a chance of recovery due to a decree by the Government of Turkey. The Commissioner of Income-tax (Appeals) allowed Rs. 95 lakhs as bad debt, which the Tribunal upheld, leading to an appeal by the Revenue. The Revenue contended that the debt valuation by the assessee in May 1981 indicated the debt could not be considered bad in 1979. They argued that as long as there was a slight hope of recovery, the debt could not be deemed bad. However, the assessee argued that the decision to write off the debt was based on a valuation by bankers in December 1979, and the decree by the Government of Turkey in January 1980 was irrelevant to the previous year's assessment. The Tribunal found that conditions for bad debt deduction were met, especially after a letter from the Indian Embassy in Turkey in March 1979. The Tribunal accepted the assessee's claim for bad debt deduction, emphasizing the proper quantification and expert assessment. The High Court upheld the Tribunal's decision, emphasizing that the assessment of bad debt must be based on a bona fide evaluation of recoverability, not later events, and that the Tribunal's factual findings were not challenged as perverse. In conclusion, the High Court affirmed the Tribunal's decision to allow the bad debt deduction of Rs. 95 lakhs, rejecting the Revenue's arguments against the recovery possibility. The Court highlighted the importance of a prudent assessment of bad debt based on the circumstances prevailing at the time of write-off, not subsequent events. The judgment favored the assessee, confirming the deduction of bad debt and dismissing the Revenue's appeal.
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