1989 (3) TMI 41 - HC - Income Tax

Summary

Issues:
1. Entitlement to deduction under section 10(2)(xi) of the Indian Income-tax Act, 1922.
2. Justification of the Tribunal's decision on the bad debt becoming doubtful during the relevant previous year.

Entitlement to Deduction under Section 10(2)(xi):
The case involved a dispute regarding the allowance of a bad debt or loss incurred by the assessee, who were film distributors, amounting to Rs. 1,61,531. The amount was debited in the profit and loss account as irrecoverable from a producer and director, representing advances for the production of two pictures that were never produced or received by the assessee. The Income-tax Officer rejected the claim for deduction, adding the amount to the total income. The Appellate Assistant Commissioner deemed the claim premature, leading the assessee to appeal to the Tribunal. The Tribunal examined the timeline of events, including legal actions and agreements, and concluded that the debt had become bad and irrecoverable. The Tribunal's finding was upheld as a question of fact, citing the precedent set by the Supreme Court in Bank of Bihar Ltd. v. CIT [1962] 45 ITR 427, which established that the determination of a bad debt is a factual inquiry.

Tribunal's Decision on Bad Debt:
The Tribunal's decision was based on a thorough analysis of the events surrounding the debt, including legal disputes and failed attempts at recovery. Despite the passage of time and legal actions taken by both parties, no progress was made in recovering the amount. The Tribunal considered the commercial aspect of the situation and concluded that the debt had indeed become bad and irrecoverable. The High Court concurred with the Tribunal's findings, emphasizing that the factual determination of a bad debt cannot be revisited unless proven perverse. As the Tribunal's decision was deemed reasonable and not perverse, the questions referred to were answered in favor of the assessee, allowing the deduction for the bad debt.

In conclusion, the High Court upheld the Tribunal's decision, affirming the entitlement of the assessee to the deduction for the bad debt incurred. The judgment highlighted the importance of factual findings in determining the status of a bad debt and reiterated the principle that such determinations are not open to reevaluation unless proven perverse.