TMI Blog1996 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 1973-74 and the debt became bad in the assessment year 1977-78 was perverse and/or not borne out by the evidence on record ? " The assessee, a dealer in cotton, had supplied cotton by invoice value of Rs. 73,582 to Ahmedabad Jupiter Spinning and Weaving Company Limited, Bombay, which transaction took place on June 10, 1971. The said Bombay company issued two cheques dated June 25, 1971, and July 26, 1971, in the sum of Rs. 37,000 and Rs. 36,582.61, respectively, i.e, for the total sum of Rs. 73,582.61. However, these cheques were dishonoured and on June 28, 1971, the management of the said company intimated to their employees that because of the financial difficulties, the mill was to close down. The management of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debt on the ground that the Ahmedabad Jupiter Spinning and Weaving Co. Ltd., Bombay, had been taken over by the Central Government and that the amount due from the company was not recoverable. The Income-tax Officer, however, held that though the said company was taken over by the Central Government, it was not known whether the Government had paid any amount to the assessee and, therefore, it could not be held that the said amount had become irrecoverable. The bad debt claim was, therefore, disallowed and added in the total income of the relevant year. The assessee challenged the Income-tax Officer's order before the Appellate Assistant Commissioner of Income-tax, Range " A ", Baroda, and the Appellate Assistant Commissioner finding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of recovery of its dues, that the debt had become bad only in the accounting year in which the letter was received by the assessee, i.e., in the assessment year 1977-78, but so far as the year 1973-74 was concerned, the claim was premature. The appeal was accordingly allowed. Later on, a review application was made before the Tribunal pointing out certain factual errors which had crept in its order, partly due to the errors reflected in the written arguments which were submitted by the assessee. The Tribunal by its order dated September 17, 1979, directed certain corrections to be made in its order dated March 30, 1979. These corrections will have some hearing on the merits of the matter and, therefore, we may refer to them. In paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aharashtra Government, however, later on, we were informed that the company was taken over by the Central Government and passed on to the authorised controller on October 8, 1971. Later, on December 21, 1974, it was taken over under the Sick Textile Undertakings (Nationalisation) Act, 1974." This modification is material because while making the earlier order the Tribunal had proceeded on the footing that the Government had taken over the undertaking on January 8, 1971, and in the context of that date, it had proceeded to observe that the assessee had in fact dealt with the Government which had taken over the undertaking, since the transaction had taken place on June 10, 1971. In reality, the Central Government had passed the order of tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite off the claim as a bad debt was or could be demonstrated to be improper or otherwise not bona fide. In our view, the requirement that the debt has become bad or irrecoverable did not mean that the Department can insist upon demonstrative and infallible proof that the debt had become bad. Moreover, it is not compulsory for the assessee to take legal proceedings against the debtor for recovery of the claim before writing it off as a bad debt. In our opinion, when the creditor bona fide writes off the debt as there appears no chance of its recovery in the foreseeable future or where the recovery proceedings would be so cumbersome and expensive as to outweigh any advantage of instituting any recovery proceedings, he discharges the onus an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking of the said company under section 18A of the Industries (Development and Regulation) Act, 1951, on October 8, 1971. It is also established that the two cheques which were issued by the company on June 25, 1971, and July 26, 1971, were dishonoured. The notification declaring the said mill company at Bombay to be a relief undertaking was issued under the provisions of the Bombay Relief Undertakings (Special Provisions) Act, 1958, on October 15, 1971, and the enforcement of any right or remedy against the said undertaking was suspended. Therefore, if the assessee had written off its claim as a bad debt in this background in the assessment year 1973-74 it can never be said that it had not acted in a bona fide manner. There was sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X
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