TMI Blog1998 (2) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... ned payments were not forthcoming. As appears from the assessment order, the assessee was requested to prove that the said sums had become bad debt during the relevant previous year. The assessee, therefore, produced certain correspondence made with the aforementioned debtors. During the course of hearing before the Assessing Officer, the assessee submitted that due to the smallness of the amounts, it was not considered worthwhile to take legal action to recover the subject debts. The Assessing Officer found that the amount due and payable by Sarada Press, Bhagalpur, pertained to the period 1983-84. By a letter dated April 1, 1985, addressed to the assessee, Sarada Press, Bhagalpur, contended that they would start sending the payments month by month from the month of April, 1985. The fact remained, however, that no payment was made by Sarada Press, Bhagalpur, to the assessee until the end of the previous year, that is to say, until October 30, 1985. In so far as Amit Agencies, Allahabad, is concerned, the Assessing Officer found that it had confirmed the balance due and payable by it to the assessee by a letter dated December 31, 1983, and subsequent thereto made certain paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and Amit Agencies, Allahabad, held on July 6, 1983, and letters of the assessee dated July 24, 1984, and September 22, 1984, whereupon he held that the assessee made an honest judgment in writing off the amount due to it by Amit Agencies, Allahabad, as irrecoverable. The Tribunal dealt with the matter in the manner as follows: "After hearing both the parties and perusing the material on record we are of the opinion that the Commissioner of Income-tax (Appeals) was justified in directing the deletion of thebad debts. In doing so, the Commissioner of Income-tax (Appeals) has relied upon the judgment of the Bombay High Court in the case of Jethabhai Hirji and Jethabhai Ramdas v. CIT [1979] 120 ITR 792. We agree with the reasoning and conclusion of the Commissioner of Income-tax (Appeals) in deleting the disallowance of thebad debts in respect of two parties, Sarada Press and Amit Agencies, aggregating to Rs. 1,35,666. His order is, therefore, upheld in this regard." Section 36(1)(vii) of the Income-tax Act, 1961, as it stood at the relevant time, is as follows: "(vii) Subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge shortage. The Assessing Officer refused to accept the said debt to be abad debt on the ground that there is a chance for recovery of the debt inasmuch as the Government of Turkey has subsequently declared that the debts due to foreigners would be paid after 54 months in small instalments over a period of 10 years. The court pointed out that as on the date of taking the decision to write off, it cannot be said that the said decision was not an honest decision and that later happenings would not be relevant. In Devi Films Ltd. v. CIT [1963] 49 ITR 874 (Mad), the court found that the debtor is still active in the pursuit of his business, profession or vocation ; the debtor owned immovable properties both in Madras and Ootacamund ; he is holding shares in a film producing concern. To the outside world the debtor was found certainly not a person without credit verging on insolvency. His indebtedness to others under decrees of court, it was observed, is only one side of the picture. The court, therefore, concluded that it is impossible to assume that the assessee in the circumstances could have reasonably thought that the sum became abad debt at the relevant time. In Kamla Cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration by the Commissioner of Income-tax (Appeals) as well as by the Tribunal, was the ability or feasibility of recovery of the debt from the angle of the assessee and not of the debtor. In those circumstances both of them erred in law. We, therefore, answer the question in the negative and in favour of the Department. There is, however, a residuary matter. Learned counsel appearing on behalf of the assessee relying on the judgment of the Supreme Court in the case of Bank of Bihar Ltd. v. CIT [1962] 45 ITR 427, contended that whether a debt is abad debt or not, is a question of fact and the Tribunal having founded its conclusion on facts, it is not open to the High Court in a reference to reopen the facts for the purpose of reappreciating the evidence. In the case of Bank of Bihar Ltd. v. CIT [1962] 45 ITR 427, the Supreme Court made the following observation: "The question whether a debt is abad debt is one of fact, and if there is some evidence to justify the conclusion, it is not open to the High Court in a reference under section 66 of the Indian Income-tax Act to reappreciate the evidence." The Supreme Court, therefore, said that if there is some evidence to justify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promises does not mean that the debt has become bad or irrecoverable for the purpose of allowance of deduction under the Income-tax Act. In the case of Jethabhai Hirji and Jethabhai Ramdas v. CIT [1979] 120 ITR 792 (Bom) it was held, inter alia, that the Tribunal misdirected itself in ignoring from consideration the very relevant statement of the managing director of the debtor-company (New Era) which indicated that even at the time when the loss was crystallised, the position of the debtor was weak and becoming weaker. When the Income-tax Officer recorded the statement of the managing director---not in the presence of the assessee---and failed to examine and elicit a clear answer from the debtor about the financial position of the debtor in the year 1957 or early 1958, it would not lie in the mouth of the Revenue to complain that the assessee had not discharged the onus of showing that the debt was bad and irrecoverable in the year of account, especially when the opportunity was available to the Income-tax Department and was not availed of by it when all these were done behind the back of the assessee. The failure of the Tribunal to consider the inferences flowing from this stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee was, however, able to realise by collections from exhibitions and by sale of distribution rights, in all a sum of Rs. 4,91,001-12-3. There remained a balance of Rs. 65,950-13-10 due and payable by Tehrani to the assessee. It appears that this Tehrani was not a person of large means. He had a house in the city of Madras, purchased in the name of his wife. He held 100 shares in Newtone Studios Ltd. of the face value of Rs. 10,000. Notwithstanding the indebtedness of Tehrani to the assessee, it entered into an arrangement with Tehrani on April 1, 1957, by which Tehrani pledged his shares in Newtone Studios as security for a sum of Rs, 10,000 on condition of the assessee waiving the balance of Rs. 55,950-13-10. As stated already, Tehrani's liability to the assessee on that date was Rs. 65,950-19-10. In the year of assessment 1957-58, in respect of the previous year ended April 12, 1957, the assessee wrote off this sum of Rs. 55,950-13-10 as bad and doubtful debts and claimed it as a proper deduction under section 10(2)(xi) of the Indian Income-tax Act in computing its income. The Income-tax Officer rejected the assessee's claim holding that the assessee had not taken any l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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