1977 (10) TMI 53 - AT - Income Tax

Summary

Issues:
- Disallowance of debt amounting to Rs. 2,281 related to discontinued business.
- Disallowance of legal expenses amounting to Rs. 2,869 on the ground of discontinued business.

Analysis:
1. The appeal was filed against the order of the AAC for the assessment year 1973-74 concerning the disallowance of a debt amounting to Rs. 2,281, claimed by the assessee. The lower authorities disallowed the claim stating it related to a discontinued business, and no details were provided. The assessee argued that the cloth business was temporarily suspended due to litigation but not discontinued. Evidence was presented for the subsequent year to support this claim, including details of bad debts and ongoing court cases for recovery.

2. The dispute centered on whether the cloth business was discontinued or temporarily suspended. The assessee demonstrated through evidence of income from the cloth business in the following year, legal expenses for court cases against debtors, and efforts to recover debts that the business was temporarily suspended, not closed. The Tribunal observed that the debts claimed to be bad were mostly petty in nature and allowed the deduction of Rs. 7,281 under the head of bad debts, overturning the lower authorities' decision.

3. Additionally, the assessee contested the disallowance of legal expenses amounting to Rs. 2,869. This claim was rejected by the lower authorities on the premise of a discontinued business. However, since the Tribunal established that the cloth business was not discontinued but temporarily suspended, the legal expenses were deemed admissible deductions for the relevant year, especially considering the genuineness of the expenses was not in dispute.

4. Ultimately, the Tribunal allowed the appeal, directing the deletion of the disallowed sum of Rs. 7,281 under bad debts and accepting the claim for legal expenses amounting to Rs. 2,869. The decision was based on the finding that the cloth business was not discontinued but temporarily suspended, warranting the allowance of the deductions claimed by the assessee.