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Issues Involved:
1. Validity of deduction of Rs. 2,00,000 under Section 10(2)(xi) or Section 10(1) of the Indian Income-tax Act, 1922. 2. Whether there is any material to support the finding that the sum of Rs. 2,00,000 did not become bad or irrecoverable during the previous year relevant for the assessment year 1953-54. Issue-wise Detailed Analysis: 1. Validity of Deduction of Rs. 2,00,000 under Section 10(2)(xi) or Section 10(1) of the Indian Income-tax Act, 1922: The assessee, a private limited company, M. L. Dahanukar & Co. Private Limited, claimed a deduction of Rs. 2,00,000 as a bad debt written off from the advances made to Worli Chemical Works Ltd. The Income-tax Officer initially allowed this deduction, considering the financial status of Worli Chemical Works Ltd., which had been suffering continuous losses. However, the Commissioner, using his revisional powers under Section 33B, reversed this decision, stating that the assessee-company continued to finance the Worli company even after writing off the debt, indicating that the debt was not genuinely considered irrecoverable. The Tribunal upheld the Commissioner's decision, concluding that "a prudent businessman would not have considered the debt as bad" at the time it was written off, deeming the write-off premature. 2. Material to Support the Finding that Rs. 2,00,000 Did Not Become Bad or Irrecoverable During the Previous Year Relevant for the Assessment Year 1953-54: The Tribunal and the Appellate Assistant Commissioner found that the Worli company's financial position was not so dire as to justify the write-off of Rs. 2,00,000. Despite having liabilities exceeding assets, the Worli company had the potential to call up additional capital and continued to receive advances from the assessee-company. The Tribunal noted that the Worli company was actively negotiating business deals, including potential collaborations with foreign entities, which indicated that it was not in a hopeless financial state. Moreover, the Tribunal observed that the Worli company continued to engage in business transactions with other companies in the Dahanukar group, further undermining the claim that the debt was irrecoverable. The Tribunal emphasized that the assessment of whether a debt is bad must be based on the circumstances at the time of the write-off, but subsequent events and conduct can also be relevant. The court referred to the decision in Devi Films Ltd. v. Commissioner of Income-tax, which held that the financial position of the debtor and the creditor's conduct post write-off are pertinent in determining the genuineness of the bad debt claim. The court concluded that the tax authorities were justified in their assessment, as the facts did not support the claim that the debt was irrecoverable at the time it was written off. The assessee's continued financial support to the Worli company and the latter's ongoing business activities contradicted the assertion that the debt was bad. Conclusion: The court answered the first question in the negative, denying the validity of the deduction under Section 10(2)(xi) or Section 10(1). The second question was answered in the affirmative, supporting the finding that the sum of Rs. 2,00,000 did not become bad or irrecoverable during the relevant assessment year. The assessee was ordered to pay the costs of the Commissioner.
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