1983 (12) TMI 95 - AT - Income Tax

Summary

Issues:
1. Deduction claim for bad debt disallowed by the ITO.
2. Interpretation of bad debt in relation to a loan advanced for business purposes.

Analysis:
The appeal before the Appellate Tribunal ITAT BOMBAY-D contested the order of the CIT (Appeals) regarding the deduction claim for bad debt by M/s Konark Kombine for the assessment year 1979-80. The primary issue was the ITO's disallowance of the claim amounting to Rs. 14,000, contending it was a loan and not a bad debt or business loss. The ITO relied on the provisions of s. 36(2)(i)(a) of the IT Act to disallow the claim, stating that the amount was given as a loan to M/s Regal Iron Supplying Co. and not recoverable due to the disappearance of the party. The CIT (Appeals) reversed this decision, emphasizing that the advance was for business purposes and justified the write-off as bad debt when all chances of recovery failed.

The CIT (Appeals) accepted the argument that the transaction with M/s Regal Iron Supplying Co. was not an isolated loan but an advance for steel supplies in short supply. Referring to precedents, the CIT (Appeals) noted that such advances could be treated as bad debt. Additionally, the lodging of a police complaint by the assessee against the party indicated efforts for recovery. The Tribunal upheld the CIT (Appeals) decision, emphasizing the business nature of the transaction and the failure of the party to honor the debt, justifying the write-off.

The department, represented by Shri K.K. Tuli, supported the ITO's decision, highlighting the acknowledgment of the loan by M/s Regal Iron Supplying Co. The assessee's counsel, Shri L.K. Jhangiani, argued that the amount was part of regular business transactions and not solely a loan. The Tribunal analyzed the book entries and correspondence, confirming that the amount was a legitimate business transaction and justified the write-off. Consequently, the Tribunal dismissed the department's appeal, affirming the CIT (Appeals) decision regarding the deduction claim for bad debt.

In conclusion, the Tribunal upheld the decision of the CIT (Appeals) and dismissed the department's appeal, emphasizing the business nature of the transaction with M/s Regal Iron Supplying Co. and the justification for treating the unrecoverable amount as bad debt.