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Issues:
1. Interpretation of provisions under section 256(1) of the Income Tax Act, 1961. 2. Claiming deduction for bad debt due to embezzlement. 3. Assessment of business loss for the relevant assessment years. Analysis: The judgment pertains to a reference under section 256(1) of the Income Tax Act, 1961, involving the interpretation of provisions related to the deduction of bad debts due to embezzlement. The case involved an assessee, a private limited company, which suffered a loss of Rs. 27,50,000 due to embezzlement by its agent, Alwyn Ezra. The company claimed a deduction of Rs. 9,00,000 as a bad debt in the assessment year 1958-59, which was initially disputed by the Income Tax authorities. However, a previous decision by the Bombay High Court in Sassoon J. David & Co. (P.) Ltd. v. CIT [1975] 98 ITR 50 established that such losses could be deducted under section 10(1) of the Indian Income Tax Act, 1922. The Tribunal in the current case had to determine whether the assessee was entitled to write off the remaining balance of Rs. 89,112 in the relevant assessment year, which was 1969-70. The Tribunal found that the assessee had an honest and bona fide belief in the chance of recovering the balance amount of Rs. 89,112 until the relevant previous year. The Tribunal noted that the company did not stand to gain any advantage by writing off the losses and claiming them in different assessment years. Therefore, the Tribunal held that the assessee was entitled to write off and claim the loss of Rs. 89,112 in the relevant assessment year. The main issue before the High Court was whether this loss of Rs. 89,112 could be considered a business loss. The High Court, considering the facts and circumstances of the case, concurred with the Tribunal's findings. It was undisputed that the assessee genuinely hoped to recover the amount until the relevant previous year when it lost that hope. Therefore, the High Court answered the question in the affirmative and in favor of the assessee. The Court also noted that there would be no order as to the costs of the reference. Additionally, a notice of motion taken out by the Commissioner was dismissed with no order as to costs. In conclusion, the judgment clarifies the treatment of bad debts resulting from embezzlement under the Income Tax Act and highlights the importance of genuine belief in recovering such losses for claiming deductions. The decision underscores the significance of factual findings in determining the eligibility of businesses to write off losses in relevant assessment years.
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