1991 (10) TMI 81 - AT - Income Tax

Summary

Issues:
1. Disallowance of bad debts by the ITO.
2. Confirmation of disallowance by the CIT(A).
3. Whether the debt due to the assessee has become irrecoverable.
4. Whether the advances made were in the ordinary course of business.
5. Justification of the CIT(A) in confirming the disallowance.
6. Burden of proof on the assessee regarding bad debts.

Analysis:
1. The appeal was filed by the assessee against the disallowance of Rs. 4,00,682 on account of bad debts by the ITO for the assessment year 1975-76. The disallowance was confirmed by the CIT(A).

2. The ITO disallowed the claimed amount as bad debts, stating that the debt due to the assessee from a company had not become irrecoverable. The ITO argued that the debt could still be recovered as the Commissioner of Payments had not settled the claims of various creditors, including the assessee.

3. The CIT(A) upheld the disallowance, noting that the advances made by the assessee were not in the ordinary course of business. The CIT(A) questioned whether the advances were a deliberate incurring of losses, especially since two partners of the appellant-firm were directors of the debtor company.

4. The CIT(A) further observed that the financial condition of the debtor company was poor, with liabilities exceeding assets. The assessee had advanced loans to the company even after it had ceased operations, indicating a lack of intention to recover the amounts. The CIT(A) relied on a Supreme Court decision to support the disallowance.

5. During the appeal, the authorised representative of the assessee argued against the CIT(A)'s decision, stating that the advances were made to revive the company. The representative challenged the CIT(A)'s conclusions and provided evidence to support the claim that the debt was irrecoverable.

6. The Tribunal considered the financial status of the debtor company and the circumstances of the advances. It held that the debt had not become irrecoverable during the relevant accounting year. The Tribunal emphasized the burden of proof on the assessee to establish the irrecoverability of the debt with evidence, citing relevant legal precedents.

7. Ultimately, the Tribunal upheld the CIT(A)'s decision to confirm the disallowance of bad debts. The appeal by the assessee was dismissed based on the failure to prove the irrecoverability of the debt during the relevant accounting year.

This detailed analysis highlights the key arguments, legal principles, and decisions made by the authorities involved in the case regarding the disallowance of bad debts claimed by the assessee.