TMI Blog1993 (11) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... quivalent amount in lira in the Central Bank of Turkey. The Central Bank of Turkey, however, did not transfer the amount deposited by the purchasers in Turkey to India. In view of the extremely critical foreign exchange reserve position, the Government of Turkey imposed a ban on all remittances out of Turkey. As a result, the amount deposited in the Central Bank of Turkey remained there. The normal period of 90 days within which the sale proceeds should have been realised expired without any receipt by the assessee an account of the aforesaid ban. The assessee entered into correspondence with the Government of Turkey through the Indian Embassy there. In the meantime, the Turkish currency was devalued successively on five occasions between O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gotiations were being carried on by the Indian Embassy in Turkey. The assessee filed an appeal to the Commissioner of Income-tax (Appeals) who allowed the sum of Rs. 95 lakhs as bad debt which had arisen in the calendar year 1979 and had been written off from the books. Being aggrieved, the Revenue went in appeal before the Tribunal. The Tribunal observed that the conditions for allowing the bad debt as deduction had been fulfilled in this case. It was the letter dated March 6, 1979, that convinced the assessee that at least a part of the amount due from the Central Bank of Turkey had become irrecoverable and bad. This event occurred in the calendar year 1979. The quantification had been properly made by an expert and no flaw had been f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the Indian Embassy in Turkey during the previous year for salvaging the assessee's dues. So long as there is a slight ray of hope of realising the debt, the debt could not be said to have become bad. The law as envisaged in section 36(1)(vii) does not contemplate the admissibility of a claim of bad debt even where the conclusion as to irrecoverability of the debt is manifestly premature and hasty. Dr. Pal appearing for the assessee on the other hand has contended that there was no dispute that the sales made by the assessee-company to the Turkish purchaser formed part of the sale proceeds of the relevant year and thus entered into the profit and loss account nor is there any dispute over the fact that the provision made for bad and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was a chance of recovery of the amount because of the decree dated January 25, 1980, of the Government of Turkey and the negotiations which were being carried on by the Indian Embassy in Turkey. The Commissioner of Income-tax (Appeals) found that no trading loss could be claimed in the calendar year 1979 because the transactions were made in the calendar years 1976 and 1977. However, coming to the alternative claim for bad debt, the Commissioner of Income-tax (Appeals) allowed the sum of Rs. 95 lakhs as bad debt which had arisen in the calendar year 1979 and had been written off from the books. Regarding the balance sum of Rs. 26 lakhs, the Commissioner of Income-tax (Appeals) disallowed the same on the ground that the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness loss but upheld the allowance of Rs. 95 lakhs as bad debt given by the Commissioner of Income-tax (Appeals) and in addition also upheld the allowance of a further sum of Rs. 26 lakhs as a deduction for bad debts. We have considered the rival contentions. True, the assessee must establish that the debt in question has become in fact a bad debt. It is not that the mere fact of the debt having been written off in the books by the assessee is sufficient for the claim that deduction under the provisions of section 36(1)(vii) as bad debt is allowable. But the question whether a debt has become bad or not must be decided from the point of view of the possibility of the realisation of the debt and the assessment of such possibility has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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