9911796707
TMI Blog1981 (2) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... claim was disallowed by the ITO on two grounds (i) that the expenditure was not proved ; and (ii) that the expenditure was in the nature of entertainment expenditure which could not be allowed in view of s. 37(2B) of the Act. The assessee had also claimed bad debts amounting to Rs. 27,000. This deduction regarding the bad debts was claimed on the ground that the debtor, who owed the above sum to the assessee, had filed insolvency petition and was adjudicated as insolvent. The claim was disallowed by the ITO on the ground that no dividend was yet declared, the petition had not been finally decided and, therefore, the debt could not be treated as bad debt. The assessee filed an appeal before the AAC. The AAC allowed the claim of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of bad debt to 10% of the total claim and as such the order of the Appellate Assistant Commissioner is modified accordingly." In the setting of the above facts, the following questions have been referred to this court for answer: " (1) Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to deduction of bad debt to the extent of 90% of the total claim of Rs. 27,000, even though no dividend had been declared by the appropriate authorities in the insolvency proceedings ? (2) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the expenditure claimed by the assessee for providing messing facilities to the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would not be proper to hold that the debt or any part of it had become bad until the receiver has completed his work. A debtor was adjudicated an insolvent in 1938 and the assessee received sum of Rs. 13,000 as a first dividend. No further sum was received until 1950 when, as a result of a litigation, the assessee received another sum of Rs. 2,195. In the year 1949-50 the assessee claimed a sum of Rs. 1,00,000 as a bad debt. The Tribunal held that the debt had become irrecoverable soon after the year 1941, on the ground that, subsequent to the payment of the first dividend in 1941, there was no visible asset belonging to the insolvent except a sum of Rs. 10,000 regarding which there was dispute between the Punjab National Bank Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endency of the insolvency proceedings in the court, unless the dividend has been declared by the authority competent in law, merely on the basis of the list of assets and liabilities filed by the debtor, can it be said that a debt has become bad ? Had the, matter not been pending in court in insolvency proceedings the fact that a debt has become bad can be proved by evidence and a finding on such evidence would be a finding of fact. In the light of the foregoing discussion, the 1st question has to be answered in the negative. With regard to the second question, it is not necessary for us to dilate on it. It is covered by a decision of this court in Misc. Civil Case No. 15 of 1977, decided on September 12, 1980, (CIT v. Lakhmichand Muchh ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
