1987 (7) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 4,65,121 as bad debt or business loss.
2. Charging of interest under section 217 of the Income Tax Act.

Detailed Analysis:

1. Deduction of Rs. 4,65,121 as Bad Debt or Business Loss:
The primary issue in this appeal is whether the assessee's claim for deduction of Rs. 4,65,121 should be allowed as bad debt or business loss. The assessee, a firm running an oil mill and ginning and pressing factory, sold goods to M/s. Radhakishan & Co., and two cheques amounting to Rs. 4,65,121 were dishonored. The assessee claimed this amount as a bad debt or alternatively as a business loss. The Income Tax Officer (ITO) disallowed the claim, arguing that the assessee had not written off the amount in the debtor's account and was still hopeful of recovery, as evidenced by ongoing recovery efforts and a pending suit in Civil Court.

The Commissioner (Appeals), however, accepted the assessee's claim, citing the Gujarat High Court's decision in Sarangpur Cotton Mfg. Co. Ltd. v. CIT, which stated that writing off an amount by a businessman is prima facie evidence of its irrecoverability. The Commissioner (Appeals) also referenced the ITAT Ahmedabad Bench ruling in Ramnarayan Hariprasad v. IAC, where dishonored cheques were written off as unrecoverable, and the Full Bench held that the assessee was justified in writing off the amount due to no possibility of recovery.

The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the loss arose from business dealings and should be allowed under section 28(i) of the Act, even if not under section 36(1)(vii) read with section 36(2). The Tribunal emphasized that the assessee had acted bona fide and had not recovered any amount from M/s. Radhakishan & Co. The Tribunal also highlighted that any future recovery could be taxed under section 41(1) of the Act, ensuring no loss to the revenue.

2. Charging of Interest under Section 217 of the Income Tax Act:
The second issue involved the charging of interest under section 217 of the Act. The ITO had charged interest due to the disallowance of the bad debt claim and a sales tax liability. The Commissioner (Appeals) directed the ITO not to charge interest, relying on the Gujarat High Court decision in CIT v. Abdul Razak & Co., which held that the assessee could not anticipate the ITO's disallowance of claims.

The Tribunal upheld the Commissioner (Appeals)'s decision, stating that since the bad debt claim was allowed, no interest could be charged under section 217. The Tribunal found no infirmity in the Commissioner (Appeals)'s order on this issue.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the Commissioner (Appeals)'s decision to allow the deduction of Rs. 4,65,121 as either bad debt or business loss and to not charge interest under section 217 of the Act.