1970 (3) TMI 19 - HC - Income Tax

Validity of the order of the tribunal - order was not based on any material/evidence - tribunal has not given any reason - order is held cryptic

Summary

Issues:
1. Disallowance of bad debt claim by Income-tax Officer
2. Confirmation of disallowance by Appellate Assistant Commissioner
3. Remand by Appellate Tribunal for further examination
4. Allowance of bad debt claim by Appellate Tribunal
5. Refusal of Tribunal to refer questions of law to High Court
6. High Court's decision on the questions referred

Issue 1: Disallowance of bad debt claim by Income-tax Officer
The Income-tax Officer rejected the assessee's claim of Rs. 1,10,705 as a bad debt for the assessment year 1954-55 on the grounds that it was a capital loss of the dissolved firm, not a trade debt, and a case of voluntary surrender. The Officer held that the debt liability was known to the assessee when taking over the firm.

Issue 2: Confirmation of disallowance by Appellate Assistant Commissioner
The Appellate Assistant Commissioner upheld the Income-tax Officer's decision, stating that the claimed loss was a capital loss, not a business loss. The Commissioner emphasized that the debt did not arise during the appellant's day-to-day business activities and was rightly disallowed.

Issue 3: Remand by Appellate Tribunal for further examination
The Appellate Tribunal ordered a remand report to examine whether the debt was related to the money-lending business of the firm taken over by the assessee. The Tribunal directed the Appellate Assistant Commissioner to consider the evidence and ascertain the nature of the debt before submitting a report.

Issue 4: Allowance of bad debt claim by Appellate Tribunal
After considering the remand report, the Appellate Tribunal allowed the appeal, stating that the assessee carried on the money-lending business and was entitled to write off the bad debt. The Tribunal noted that the interest from money-lending business was taxed in subsequent years, indicating ongoing operations.

Issue 5: Refusal of Tribunal to refer questions of law to High Court
The Tribunal declined to refer questions of law to the High Court, leading the department to move an application under section 66(2) of the Act. The High Court directed the Tribunal to refer two questions related to the money-lending business and the bad debt claim for its opinion.

Issue 6: High Court's decision on the questions referred
The High Court found that the Tribunal's decision lacked evidence to support the conclusion that the assessee carried on the money-lending business. Citing a Supreme Court case, the High Court emphasized the need for reasoning and evidence in decisions. The Court answered the first question in favor of the department due to lack of material evidence and left the second question unanswered pending further findings by the Tribunal. The Court highlighted the importance of evidence-based decisions and directed the Tribunal to review the matter on merits.