TMI Blog2011 (5) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... m Lata Bansal, Sr. Advocate with Mr. Deepak Anand, Advocate for the respondent. M.L. MEHTA, J. 1. This is an appeal under Section 260A(1) of the Income Tax Act, 1961 (for short the Act ) against the order of the Income Tax Appellate Tribunal (for short the Tribunal ) dated 3rd January, 2005 for the assessment years 1986-87. The appellant/assessee is engaged in the manufacturing of liquor, beer, juices, canned products and glass bottles etc. During the relevant assessment year 1986-87, the assessee filed revised return wherein beside other things it had claimed deduction of Rs.4,48,462/- as un-recovered bad debts. This amount comprised of various small amounts and also a sum of Rs.4,22,114/- shown against Kanpur Boot House. Regarding small amounts, it is seen that they represented mostly advances given to various parties and the assessee tried to recover but could not do so. The Assessing Officer allowed deductions of those small amounts, but declined that of Rs.4,22,114/- in respect of M/s.Kanpur Boot House of Shri Bhagwan Dass. He was not satisfied with the explanation given by the assessee with regard to the reasons for being unable to recover the said amount. He di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blocks are of no use and value in case further orders were to be cancelled. In the meantime, Shri Bhagwan Das, sole proprietor of said Kanpur Boot House was diagnosed for Cancer and ultimately died on 19th October, 1985. The assessee stated that they could not take legal action against Bhagwan Das or his legal heirs in view of the fact that they would have made counter claims on account of the firm orders placed having been cancelled. Since they also failed to recover the outstanding amount of Rs.25.32 lakhs from M/s.Comtec Commercial Corporation, USA, despite all efforts through the Embassy of India in Washington, Consulate General of India, New York and other debt collection agencies, this amount had to be written off in consultation with and after approval of the Reserve Bank of India. 4. As noted above, the Assessing Officer was not satisfied with the explanation of the assessee and proceeded to disallow on the ground that the assessee had not been able to produce any evidence regarding efforts made for recovery of the said amount and was also not able to establish that this debt became bad during this year. 5. Learned counsel for the assessee initially submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction on account of the fact that the assessee had not taken any steps for realisation of those debts. The appellate authorities also agreed with the finding of the Assessing Officer. The Tribunal also did not agree with the alternate plea of the assessee that if its case was not covered under Section 36, the same could be allowed under Section 37. In that case also, the learned counsel appearing for the assessee conceded this position that he could not claim deduction on account of its being bad debt if it did not come within the purview of Section 36(2) of the Act, and this position was also not disputed that in this reference such matter cannot be gone into which relates to facts on the question whether it was a bad debt or not as contemplated by Section 36 of the Act. It was then submitted by the learned counsel that the assessee was entitled to deduction under Section 28 read with Section 37 of the Act since the nature of the business was such that the assessee had to keep his business going on, had to advance money to the sub-contractors because without doing so it would not have been able to get the labour in time and carry on the supplies. 7. The Division Bench of J K H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess". Now, with regard to the contention whether Section 37 would be applicable when Section 36 is applicable in the present case, in my opinion it is important to note that the legislature has advisedly used the word "described" and not "covered" in Section 37. Section 37 clearly appears to be a residuary section extending the allowance to items of business expenditure and not of business losses which are deductible on the ordinary principles of commercial accounting. 8. The facts of the case before us being similar to the case of Chenab Forest Co. (supra), we find ourselves in complete agreement with the findings recorded by the Division Bench of J K High Court. 9. The case of CIT v. Mysore Sugar Co. Ltd. (supra) related to claim of bad debts under the Act of 1922. In that case also, case of the assessee company was changed from one section (S.10(2)(xi) corresponding to S.36(1)(vii) S.36(2) of 1961 Act) to another (S.10(1) S.10(2)(xv) corresponding to section 28(1) and Section 37 of 1961 Act) from time to time. In that context, the Hon‟ble Supreme Court observed that they did not wish to emphasise the nature of the question posed, because the central point to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause losses in the running of the business cannot be said to be of capital. The questions to consider in this connection are : for that was the money laid out ? Was it to acquire an asset of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business? If money be lost in the first circumstances, it is a loss of capital, but if lost in the second circumstances, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses. 10. Applying the principles of law as regard interpretation of Sections 28, 29, 36(1)(vii), 36(2) and Section 37 of the Act as enunciated by the Division Bench of J K High Court and the Apex Court in the afore-cited cases, we are of the considered view that it was in the totality of overall situation of the matter that the assessee decided to write off the advances made to M/s.Kanpur Boot House as bad debt. The reason as given by the assessee was apparently well-founded and was abruptly rejected by the Assessing Officer and the Tribunal. They did not appreciate the fact that the continuity of supply was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authorities below and so could not be raised before this Court in the present appeal. The learned counsel for the assessee submitted otherwise and relied upon Commissioner of Income-Tax, Madras v. Mahalakshmi Textile Mills Ltd., 66 ITR 710. In this case, it was held that the right of the assessee to relief was not restricted to the pleas raised by him before the departmental authorities or before the Tribunal. It was held that if for reasons recorded for the departmental authorities in respect of the contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief. It was also held that there was nothing in the Income Tax Act which restricts the Tribunal to determine all questions raised before the departmental authorities and that all questions, whether on law or facts, which relates to the assessment of the assessee may be raised before the Tribunal. 12. Merely because the claim was not made out under one particular provision of the Act, but was so made out under another provision of law, we failed to understand as to how the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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