TMI Blog1992 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... n business as dealers and suppliers of mill gin stores and clothes. It was also supplier of Burshane gas. The relevant assessment year is 1970-71. The previous year was the year ended on March 31, 1970. In the course of its business the assessee used to sell coal, glue products, Burmashell oil and allied products to various textile mills including one M/s. Manekchowk and Ahmedabad Manufacturing Company Limited of Ahmedabad. It was one of the biggest purchasers of the products supplied by the assessee. From the year 1962 onwards, the aforesaid textile mill was in financial difficulties and the assessee started advancing monies to it from time to time. The advances were recorded by the assessee in its books of account in a separate loan acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, allowed as deduction only the amount written off in the goods account and disallowed the amount which was written off in the loan account as the same, in his opinion, amounted to capital loss which was not an allowable deduction under section 36 or any other provision of the Act, which was relevant in computing the income under section 28 of the Act. On appeal, the Appellate Assistant Commissioner approved the decision of the company to write off the full amount from the goods account. The Appellate Assistant Commissioner, therefore, allowed full deduction on account of the amount to the extent of debts which were due from the textile mill company on account of goods supplied to it as a bad debt under section 36(1)(vii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the assessee maintained two different accounts. One was the goods account which reflected the amount due from the textile mills on account of supply of goods on credit and another the loan account which reflected the amount of loan given by it. The approach of all the authorities below including the Tribunal while disallowing the claim of the assessee for deduction of any part of this loan written off by the assessee was that it was a capital loss. It had nothing to do with the business of the assessee. The contention of the assessee is that all the authorities including the Tribunal failed to look at the controversy from the angle of a businessman which they were obliged to do. If they had done so, this claim would have been all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he peculiar facts of that case as in that case there was no evidence for the finding recorded by the Tribunal that the loss in question had not been incurred by the assessee in the course of business so as to be deductible from the income of the business under the provisions of the Act. In Vassanji Sons and Co. [1980] 125 ITR 462, this court allowed the deductions in view of its findings that the object of advancing money in that case was to provide finance for the company in which the assessee was substantially interested and that the debt in question could be regarded as springing directly from the carrying on of the business or trade and incidental to it. It is in this context that this court observed that the test and the approach to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was one of its important customers, though one of the relevant factors, is not the determining factor to decide the issue. It may be relevant to the extent that the assessee, in the given circumstances, might be justified in continuing the supply of goods on credit in view of its past business relations and in view of its importance in the list of buyers. But when the financial condition of the buyer company was dwindling, which ultimately resulted in its winding up, lending money in addition to supplying the goods on credit, in our opinion, by no stretch of imagination can be said to be the conduct of a prudent businessman. We need not go into any other factor that might have weighed in the mind of the assessee while advancing the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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