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TMI Blog1988 (7) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... two grounds are concerned. In doing so we refer to the reasons recorded by us in our order dt., 21st July, 1988 in the assessee's own case pertaining to asst. yr. 1982-83 in ITA No. 3006/Ahd/1986. These two grounds are accordingly rejected. 3. We now take up the only other surviving ground in this appeal and this pertains to the assessee's claim in respect of bad debts amounting to Rs. 47,79,259. At this stage we may mention that the assessee is a Limited Company in which the public are substantially interested. It is engaged in the business of generation and supply of electricity to Ahmedabad and Gandhi Nagar. In the course of the assessment proceedings the assessee laid forth a claim for bad debts to the tune of Rs. 49,34,842. This was rejected by the ITO on the following grounds: Rs. 1. Amount due from 840 customers exceeding three years and each amount less than Rs. 100 20,658 2. Amount due from156 customers exceeding three years. 28,924 3. Amount due from 141 parties and prior to 31st March, 1980 1,06,000 Date of Service 4. Marsdan Spg., Mfg., Ltd. 13,83,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment of Gujarat vide proclamation of Gazette dt., 18th Nov., 1985. The appellant company disconnected the services of these companies for non-payment and had filed claims before the Commissioner payments. However, no legal steps have been taken in respect of these bad debts. As stated by the ITO, the textile mills concerned have considerable assets and the liquidation proceedings are not yet finalised. Therefore, the debts cannot be treated as irrecoverable at this stage. The authorised representative submits that considering hopeless financial position of the debtors, it was considered not to take any steps. The authorised representative has relied on the decision of the Gujarat High Court in Sarangpur Cotton Mfg., Co., Ltd., vs CIT (1982) 31 CTR (Guj) 247 : (1983) 143 ITR 166 (Guj) as well as the Bombay High Court decision in the case of Jethabhai Hriji vs. CIT (1978) CTR (Bom) 415 : (1979) 120 ITR 792 (Bom). It may be pointed out that the ratio of the above cases are not applicable in the present case, the facts being not identical. In the case of Sarangpur Cotton Mfg. Co. Ltd., legal steps were taken and after long lapse of time, the debtor filed insolvency petition wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently recoveries had been offered for tax in the year concerned. (12) That the amendment brought about in s. 36(2) also supported the assessee's case. That although the same was effective from 1st April, 1989, it indicated the legislative intent. 6. In support of his arguments, the learned counsel for the assessee relied heavily on the judgment of the Hon'ble Gujarat High Court in the case of Sarangpur Cotton Mfg. Co. Ltd., vs. CIT (1982) 31 CTR (Guj) 247 : (1983) 143 ITA 166(Guj). He also placed reliance on two decisions of the Bombay High Court being Jethabhai Hirji Jethabhai Ramdas vs. CIT (1978) CTR (Bom) 415 : (1979) 120 ITR 792 (Bom) and Lord's Dairy Farm Ltd., vs. CIT (1955) 27 ITR 700 (Bom). 7. The learned Departmental Representative on the other hand strongly supported the orders of the lower authorities. He was however fair enough to state at the outset that the facts regarding the assessee's claim were not disputed. It was submitted that the assessee did not satisfy all the conditions necessary for the claim to be allowed and as viewed in the light of the decision of the Gujarat High Court in the case of Sarangpur Cotton Mfg., Co. Ltd. It was also submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment which involves payment of the arrears to a substantial extent. The details appended as annexure 'A', however, show that with the exception of Monogram Mills Co., Ltd., no other party has either revived or paid up till date. 12. Another undisputed aspect of the matter is that most of the debtors being textile mills were declared as sick units and ultimately closed down their business. The Government of Gujarat subsequently took them over under the Gujarat Closed Textile Undertakings (Nationalisation) Act, 1986 which came into force from 8th Nov., 1985. The counsel for the assessee has also challenged the finding of the ITO to the effect that the debtors "have considerable assets". He made a statement at the Bar that all efforts made by the assessee to obtain the audited accounts of the defaulting units had failed. In the light of this statement we canonly arrive at one conclusion and that is that the statement of the ITO is based on presumptions and not supported by any cogent evidence. In any case the assessment order is silent as to how this finding is arrived at 13. We are also of the view that what is required to justify a claim for bad debts is a bona fide belief and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be shown that there was a possibility of recovering the same. That a company has not yet gone into liquidation will not by itself establish such a possibility. That the assessee wrote off the debt at a particular point of time or in a particular year is not conclusive of the matter, but is not wholly or totally irrelevant. This will be a material circumstance unless it can be shown or established from the materials on record that the write off was not proper or bona fide. That this was so can be established even by reference to the subsequent conduct of the assessee from which it is possible to infer definitely that the assessee still considered that debt or at least a part thereof as recoverable or regarded the debtor as financially solvent. The fact that the assessee had not taken steps by way of legal proceedings against the debtor would not automatically justify the finding that he was not entitled to write off the amount as a bad debt. Nor would the fact that an assessee subsequent to the write-off of a debt, continued legal proceedings against the debtor necessarily lead to conclusion that the write-off was improper or lacked bona fides. These would be factors to be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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