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Issues:
Appeal against disallowance of claimed bad debt of Rs. 59,882. Analysis: The assessee, a registered firm dealing in cotton, claimed a deduction of Rs. 59,882 as bad debt against M/s Pioneer Cotton Co. (P) Ltd. The dispute arose as the debt was not written off in the debtor's account but was credited to the suspense account. The Income Tax Officer (ITO) disallowed the claim, stating that the assessee was trying to claim the amount as bad debt for tax purposes while keeping the claim alive by filing a civil suit. The Appellate Assistant Commissioner (AAC) upheld the disallowance, emphasizing the proper procedure of writing off bad debts. The assessee argued that debiting the P & L account and crediting the suspense account constituted proper compliance. The Tribunal referred to various legal precedents, including decisions by the Bombay and Gujarat High Courts, emphasizing that writing off a bad debt does not necessarily require adjusting the debtor's account but can be done by debiting the P & L account. The Tribunal concluded that the assessee had complied with the provisions of the Income Tax Act, and the amount was allowable as a bad debt. The department contended that since a suit for recovery was filed, the debt had not become bad. However, the Tribunal clarified that the disallowance was based on technical grounds of proper entry in the books of account, not on the status of the debt. Citing previous court decisions, the Tribunal reiterated that passing necessary entries in the books of account, as done by the assessee, sufficed for claiming bad debt. The Tribunal rejected the department's argument and allowed the appeal, granting the deduction of Rs. 59,882 as bad debt. The judgment highlighted the importance of following the prescribed accounting procedures for writing off bad debts and emphasized that compliance with the statutory provisions entitled the assessee to the claimed deduction. In conclusion, the Tribunal ruled in favor of the assessee, allowing the deduction of the bad debt amount. The decision underscored the significance of proper accounting entries for bad debts and clarified that compliance with statutory provisions, rather than the status of recovery efforts, determined the eligibility for claiming bad debt deductions.
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