1989 (5) TMI 112 - AT - Income Tax

Allowance Of Bad Debt, Assessment Year, Development Allowance, Expenditure Incurred, Weighted Deduction

Issues Involved:
1. Disallowance of the claim made under Section 35B.
2. Disallowance of bad debts.

Detailed Analysis:

1. Disallowance of the Claim Made Under Section 35B:
The assessee, a Nationalised Bank, claimed a weighted deduction under Section 35B of the Income-tax Act for expenses incurred in maintaining a branch in London. The expenditure amounted to Rs. 64,16,686. The Inspecting Assistant Commissioner and the Commissioner (Appeals) disallowed the claim on the grounds that the bank was not exporting services or facilities outside India, as required under Section 35B(1)(b)(iv).

The bank argued that its London branch provided various services that promoted the sale of goods, services, or facilities outside India. These services included helping Indian exporters identify prospective buyers, offering favorable financing terms to foreign buyers, collecting and transmitting confidential information, mediating disputes, arranging storage facilities, providing buyer credit, and facilitating tourism.

The Tribunal held that the assessee was entitled to the claim under Section 35B. The Tribunal observed that the section was enacted to promote the development of foreign markets, which would ultimately facilitate more exports and bring in foreign exchange. The Tribunal emphasized that the maintenance of a branch outside India for the promotion of services or facilities was sufficient to qualify for the weighted deduction, without the need for actual export of services. The Tribunal directed the Commissioner (Appeals) to verify the claim of expenses and allow the weighted deduction accordingly.

2. Disallowance of Bad Debts:
The assessee claimed the write-off of ten bad debts, which were disallowed by the Inspecting Assistant Commissioner and the Commissioner (Appeals) on the grounds that they were prematurely written off. The Tribunal discussed each bad debt separately:

- M/s A.K. Woollen Mills and Mini Enterprises (Rs. 12,44,000):
The debt was disallowed as premature despite obtaining decrees for recovery. The Tribunal held that the bank had taken all necessary steps to recover the amount, and the write-off was justified as the assets were insufficient to cover the debt.

- Punjab Electrical & General Industries (Rs. 60,264):
The debt was disallowed as premature. The Tribunal found that the bank had exhausted all means to recover the amount, and the write-off was justified.

- Ganga Prashad Bachu Lal (Rs. 16,61,271):
The debt was disallowed as premature. The Tribunal held that the bank had taken all necessary steps, and the write-off was justified as the debtor had no assets to cover the debt.

- Bharat Overseas Pvt. Ltd. (Rs. 2,75,000):
The debt was disallowed as premature. The Tribunal found that the bank had taken all necessary steps, and the write-off was justified as the debtor's assets were insufficient to cover the debt.

- Sethai Mills Ltd. (Rs. 7,71,414):
The debt was disallowed as premature. The Tribunal held that the bank had taken all necessary steps, and the write-off was justified as the debtor had no assets to cover the debt.

- Bharat Dyes & Chemical Industries (Rs. 1,65,771):
The debt was disallowed as premature. The Tribunal found that the bank had taken all necessary steps, and the write-off was justified as the debtor's assets were insufficient to cover the debt.

- Rayman Engineering Works (Rs. 4,50,000):
The debt was disallowed as premature. The Tribunal held that the bank had taken all necessary steps, and the write-off was justified as the debtor had no assets to cover the debt.

- Model Mills Ltd. (Rs. 33,18,097.15):
The debt was disallowed as premature. The Tribunal found that the bank had taken all necessary steps, and the write-off was justified as the debtor's assets were insufficient to cover the debt.

- V. Krishnamurthy Chettiar (Rs. 47,137) and V. S. Sambha Swami, Oil Merchant (Rs. 3,301):
The debts were disallowed as premature. The Tribunal held that the bank had taken all necessary steps, and the write-off was justified as the debts had become irrecoverable.

The Tribunal concluded that the bank had taken all necessary steps to recover the debts, and the write-offs were justified. The Tribunal allowed the appeal and directed the allowance of the bad debts.

Conclusion:
The Tribunal allowed the appeal, granting the weighted deduction under Section 35B for the expenses incurred in maintaining the London branch and allowing the write-off of the bad debts.

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