1983 (1) TMI 152 - AT - Income Tax

Summary

Issues:
1. Whether the sum of Rs. 69,039 written off by the assessee as a bad debt in the year under appeal was rightly done.
2. Whether the business was carried on by the assessee during the year under appeal.
3. Whether the rejection of the claim by the authorities below was justified.

Analysis:
1. The primary issue in this appeal was whether the sum of Rs. 69,039 written off by the assessee as a bad debt was justified. The assessee, a dealer in Khal, suffered a fire incident resulting in substantial stock loss. The goods were insured with two companies, and a claim was lodged. While one insurance company paid the full claim, the other paid only a partial amount due to coverage limitations. A civil suit was filed against the latter but was later withdrawn based on legal advice. The assessee then wrote off the remaining amount as a bad debt. The authorities initially rejected the claim, arguing that no business was conducted during the year. However, it was established that the business continued with some transactions, and even a single transaction sufficed to maintain business continuity for an old assessee. The Tribunal accepted the claim, emphasizing that efforts were made to recover the amount before writing it off.

2. The second issue revolved around whether the business was carried on by the assessee during the relevant year. The departmental representative contended that the business was not in full swing, but occasional transactions were made. The Tribunal clarified that for an old assessee, even a single transaction was adequate to demonstrate business continuity. The law did not mandate full-fledged operations for debt write-offs. The AAC's rejection based on the absence of a suit against one insurer was deemed incorrect, as the assessee had made reasonable efforts to recover the amount, as evidenced by the filed civil suit and subsequent withdrawal.

3. The final issue pertained to the justification of the authorities' rejection of the assessee's claim. The AAC had dismissed the claim due to the absence of a suit against one insurer and lack of full-fledged business operations. However, the Tribunal found that the assessee had made genuine attempts to recover the outstanding amount before resorting to a write-off. The Tribunal directed the Income-tax Officer to allow the bad debt of Rs. 69,039 to the assessee, ultimately allowing the appeal in favor of the assessee.