9911796707
TMI Blog1969 (4) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... me either as a bad debt or as a business loss for the assessment year 1962-63 ? " The statement of the case leading to this reference is as follows : The assessee-firm has been carrying on business as a commission agent for the sale of the products of M/s. Kirloskar Bros. Ltd., M/s. American Springs and Pressing Works (Private) Ltd., and M/s. Tata Fizon Ltd., for the Vidarbha region, besides selling hardware goods, agricultural implements and accessories. In an earlier year the assessee-firm had advanced a sum of Rs. 12,000 to one Nagayya, film producer and an artist of Madras, under an agreement of joint venture to purchase dismantled building material consisting of canvas, iron angles, wooden structures, ceiling sheets, etc., used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly rejected the assessee's claim of a deduction as a bad debt under section 36(2) of the Income-tax Act, 1961. A copy of the assessment order forms part of the statement of the case as annexure " C ". 4. On appeal the Appellate Assistant Commissioner upheld the disallowance of the claim holding that the said advance was in the nature of a loan on a friendly basis and nothing beyond, that at best it was an advance of a capital nature, with the intention of entering into a business adventure and the inability of the assessee to recover the amount could never be termed as a bad debt. Since the assessee was not carrying on money-lending business, the loan in question was neither a bad debt nor a loss of stock-in-trade. A copy of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt which became irrecoverable in the accounting year. Admittedly, the amount was paid some time in August, 1960. On the same date, it appears a hundi was taken from Nagayya. The statement of the case has attached two letters from Nagayya, one dated 1st April, 1961, and another dated 17th July, 1961, addressed to the assessee recounting the circumstances in which he was unable to pay the sum of Rs. 12,000 and promising to pay the same. There is also a reference to a letter sent by the assessee in February, 1962, in which the demand for refund of the amount seems to have been reiterated. The departmental authorities came to the conclusion that the payment of Rs. 12,000 was in the nature of a capital advanced or capital investment and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was concerned, what was paid as capital into a revenue expenditure on their own account. The further question that has been canvassed is that, even assuming that this is revenue expenditure, the amount had become irrecoverable inasmuch as Nagayya did not either purchase the materials or refund the amount which he promised to do, time and again, but had not paid and which in the estimate of the assessee had become irrecoverable and was, therefore, written off in the year of account. In other words, this expenditure had become a bad debt within the meaning of section 36 and as a bad debt was bound to be allowed as a permissible deduction in computing the income. The Income-tax Appellate Tribunal has found in paragraph 5 of the statement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any such goods and failed to return the amount which he promised to pay against the hundi given by him. In other words, what was laid out as an expenditure for purchase of goods ultimately became a liability undertaken by Nagayya so far as the return of the amount was concerned. To the extent of Rs. 12,000, therefore, Nagayya was indebted to the assessee-firm. The next question is whether this liability owed by Nagayya had become irrecoverable in the accounting year to be treated as a bad debt. In our opinion, the finding of the income-tax authorities and ultimately by the Tribunal that the assessee had failed to prove that the amount due had become a bad debt is essentially a question of fact. It cannot also be said in this case that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, in view of the fact that the debt was not very old and that there was a repeated assurance on behalf of Nagayya that he was going to pay the amount, and in the absence of any evidence to show that Nagayya was unable, due to his circumstances as to property or otherwise, to pay the debt at the relevant time, if the authorities came to the conclusion that treating this amount due as a bad debt was not justified and could not be allowed as a permissible deduction, we do not think that there is any error of law committed by the authorities in these circumstances. As already stated, even after writing off this amount as a bad debt in its account, it does appear that the assessee continued correspondence with Nagayya and even in February, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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