1981 (3) TMI 137 - AT - Income Tax

Summary

Issues:
- Disallowance of bad debt claimed by Thangam Theatre Distributors
- Determination of whether the debt had become time-barred
- Whether the debt is admissible as a bad debt or a trading loss

Analysis:
1. The appeal was filed by Thangam Theatre Distributors against the disallowance of a bad debt claimed in the assessment for the year 1976-77. The debt of Rs. 25,906 arose from a film distribution agreement with A.C. Pillai of Saraswati Pictures. The City Civil Court found the assessee was not entitled to the claimed commission due to falling short of the minimum guarantee amount.

2. The assessee argued that the debt did not become bad until the decision to withdraw the appeal before the High Court, emphasizing the pending appeal and the value of prints being nil. The departmental representative contended that the debt had become time-barred. The High Court's decision was dated two days after the accounting year, raising a dispute on the timing of the debt becoming bad.

3. The Tribunal found that the advance made by the assessee was part of a distribution contract and a common trade practice. The assessee's delay in writing off the debt was due to a genuine dispute and the pending appeal. The Tribunal rejected the argument that the debt had become bad in a preceding year or that the loss had already been incurred, emphasizing the lack of concrete evidence regarding the debt's irrecoverability.

4. Regarding the condition for a bad debt deduction, the Tribunal noted that part of the debt had been included in commission receipts and taxed in previous years. The Tribunal disagreed with the department's argument that the debt became bad after the accounting year, as the decision to withdraw the appeal was made earlier. The Tribunal allowed the full amount of Rs. 25,906 as a bad debt or a trading loss, considering the nature of the transaction and the final decision made by the assessee during the accounting year.

5. Consequently, the Tribunal allowed the appeal, granting relief of Rs. 25,906 to Thangam Theatre Distributors.