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Issues:
- Allowance of reimbursement claim against Food Corporation of India - Treatment of unrecoverable amount as bad debt or loss incidental to business - Applicability of provisions under the Income-tax Act for deduction of such amounts Analysis: 1. Allowance of Reimbursement Claim: The appeal involved a dispute regarding the allowance of a claim against the Food Corporation of India (FCI) for reimbursement of freight charges incurred by a flour mill company. The Income Tax Officer (ITO) disallowed the claim, stating there was no provision under the Income-tax Act for such allowance. The first appellate authority upheld the disallowance, questioning whether the claim had entered the computation of income in earlier years. However, the tribunal found that the claim had indeed been considered in the assessee's income calculation for previous years. 2. Treatment of Unrecoverable Amount: The tribunal examined the nature of the unrecoverable amount and determined it to be a trade debt that became unrealizable during the relevant assessment year. The tribunal rejected the argument that it constituted a remission of debt by the assessee, as the right was not relinquished voluntarily. Consequently, the tribunal allowed the amount as a bad debt under section 36(1)(vii) and as a loss incidental to business. It emphasized that the non-realization of anticipated reimbursement constituted a loss connected with the business, eligible for deduction. 3. Applicability of Income-tax Act Provisions: The tribunal addressed the absence of specific provisions in the Income-tax Act for the deduction of such amounts. It cited legal precedents and principles of commercial accounting to justify the allowance of the unrecoverable sum. Relying on Supreme Court and High Court decisions, the tribunal concluded that the amount could be claimed as a deduction based on commercial expediency and ordinary principles of commercial accounting. It dismissed the argument that a provision akin to section 41(1) was necessary for such deductions, highlighting that courts had recognized deductions based on business purposes and revenue accounts. 4. Conclusion: Ultimately, the tribunal allowed the appeal, deleting the addition of the unrecoverable amount from the assessment. The decision was based on the findings that the claim had been accounted for in previous years, the unrecoverable sum qualified as a bad debt or business loss, and legal principles supported the deduction despite the absence of specific statutory provisions.
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