TMI Blog1995 (2) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ided to write off the said amount in A.Y. 1989-90 which is under consideration before us. The Assessing Officer observed that section 36(2)(i)(a) provides that no deduction shall be allowed as bad debt unless such debt has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year. The payment made in excess of the purchase price as an advance to the supplier of goods was not at all taken into account in computation of assessee's income in the year under consideration or in any of the earlier years. The excess amount so given by the assessee also cannot be considered as money lent in the ordinary course of business of banking or money lending, as the assessee is not carrying on any such business. He, therefore, came to the conclusion that the conditions prescribed in section 36(2) is not satisfied in the present case and therefore, the claim of bad debt cannot be allowed. 3. The learned first appellate authority observed that the assessee had written several letters to the seller party. From the correspondence made between the assessee and the seller party, it appears that the seller party's position has deteriorated and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payments made to transport contractors by way of advance against anticipated carting bills. It was held by the Hon'ble High Court that since the whereabouts of the contractors were unknown over a period, the assessee wrote off the debt and claimed deduction thereof as bad debt. The Hon'ble High Court dismissed the revenue's application under section 256 on the ground that the genuineness of the transaction was accepted and that was essentially a question of fact. Further more, it is not clear from the said decision as to whether the assessee's claim was allowed under section 28 or under section 37 or whether the question relating to its being covered by the ambit of section 36 was subject matter of discussion in the said case before the Tribunal. The decision of ITAT Ahmedabad Bench in the case of Amrish Navinchandra Co. relied upon by the learned counsel for the assessee is clearly distinguishable, as the deduction in that case represented a trading loss and was allowed as such under section 28 of Income-tax Act, 1961. 6.3 The next decision in the case of Bombay Film Lab (P.) Ltd. decided by the Bombay Tribunal related to advances made by the assessee to the customers in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of the business. Such expression clearly indicates that debt should be of such a revenue character which has either already gone into the profits earlier or which when realised would become the profits. In the present case the assessee has given advance for purchase of goods from the said party. The excess amount of advance so given, when realised would not have increased the profits of assessee's business, but the same would have only been a repayment made by the supplier to the assessee. We are, therefore, of the considered opinion that the amount in question could not be allowed as bad debt under section 36(1)(vii) r.w.s. 36(2). The aforesaid view taken by us is clearly fortified by the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Equitorial (P.) Ltd. 37 Taxation Section III 82. The Hon'ble Gujarat High Court after taking into consideration several judgments arrived at the following conclusion :- " Applying these tests it is clear to us that the case of the assessee in the instant case regarding the said amount of Rs. 1,78,523 cannot be said to be a bad debt within the meaning of section 36(1)(vii). Applying the test of Rowlatt J., mentioned above, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount in question as a trading loss under section 28(1) and/or under section 37 of Income-tax Act, 1961 has not been taken into consideration by the lower authorities. The conditions relating to grant of deduction as a bad debt and a trading loss has undergone a significant change by an amendment of section 36(1)(vii) and section 36(2) made by the Direct Tax Law (Amendment) Act, 1989 with effect from 1-4-1989 which is applicable from assessment year 1989-90. The old provision as it existed prior to 1-4-1989 provided that the debt must be established to have become bad in the previous year. This led to a litigation on the question of year of allowability of bad debt in the particular year. In order to eliminate the dispute relating to year of its allowability and also to rationalise the provision, it has now been provided that claim for bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee. But such a liberal approach about the year of allowability cannot be extended to deduction allowable in respect of trading loss under section 28 and/or under section 37. We are, therefore, of the considered opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
