TMI Blog1987 (7) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- 6,76,076 -------- Cheques for Rs. 2,20,002 was realised. Two cheques of Rs. 2,30,000 each of 28-8-1981 on State Bank of Indore were dishonoured as per bank's Memorendum dated 5-9-1981. Thus the amount of Rs. 4,56,074 was due from the debtor. The assessee incurred some expenditure for recovery. Total due from the party amounted to Rs. 4,65,121. The assessee thereafter made inquiries at Ahmedabad and learnt that many others were also cheated by M/s. Radhakishan Co., Ahmedabad. Cheques given to several other parties were also dishonoured. It is further stated that local inquiries revealed that there was no ray of hope of any recovery and as the incident pertain to this year, the amount had to be written off against the profit of this year." 4. On the aforesaid facts, the assessee claimed deduction of Rs. 4,65,121 as bad debt or in the alternative as a business loss. The ITO, however, disallowed the assessee's claim for deduction of the said amount with the following observations : "7. The contention of the assessee that amount was not recoverable or there was no ray of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 either as bad debts or in the alternative as trading loss. It further claimed that no interest under section 217 of the Act, could have been charged in its case. In support of its submissions, the assessee had relied on a number of decisions of the Hon'ble Gujarat High Court mentioned in the grounds of appeal taken up before the Commissioner (Appeals). During the course of hearing before the Commissioner (Appeals), the assessee had reiterated the submissions which were made before the ITO by elaborating the grounds of appeal taken up before him. It has also relied on the order of the Tribunal in the case of Ramnarayan Hariprasad v. IAC [1985] 11 ITD 398 (Ahd.)(TM). It was, therefore, urged that deduction of Rs. 4,65,121 should have been allowed by the ITO either as bad debt or as business loss. In this view of the matter, it was submitted that no interest could have been charged under section 217 of the Act. The Commissioner (Appeals) accepted both the contentions of the assessee, in the following manner : "4. I have considered the submission very carefully. The Gujarat High Court in the case of Sarangpur Cotton Mfg. Co. Ltd. v. CIT [1983] 143 ITR 166 have made an observation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also following the decisions of the cases on which the reliance has been made, I find that the ITO is not justified in not allowing the claim of the assessee. The ITO is, therefore, directed to allow the claim of bad debt to the tune of Rs. 4,65,121. 5. The next objection is with regard to the charging to the interest under section 217 of the Act. The ITO since he has disallowed the claim of bad debt of Rs. 4,65,121 as well as since he has disallowed the claim of sales tax liability of Rs. 40,630, the assessee-firm has become liable for charging of interest under section 217 of the Act, and accordingly he has levied the interest of Rs. 32,625. Against this, the learned counsel has objects and.stated that the assessee cannot anticipate that the addition would be made by the ITO on account of various claims made of sales tax liability as well as the bad debts. Hence the ITO is not justified in levy of interest under section 217. The reliance has been made on the decision in CIT v. Abdul Razak Co. [1982] 136 ITR 825 (Guj.). 6. I have considered the submission very carefully. as stated above, the charging of interest under section 217 has arisen due to the disallowance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said party during the previous year relevant to the assessment year under appeal. According to him, in deciding the point at issue, we have to consider the age of the debt which in the instant case, was hardly less than a year. Further, we have to consider whether while claiming bad debt, the assessee had exercised its honest judgment to show that there was no chance of any recovery from the debtor. He further submitted that in deciding the point at issue, it is not necessary to look into the subsequent events as to whether the assessee had in fact recovered any amount from the debtor. In support of his submissions, he relied on the decisions in the cases of B. D. Bharucha v. CIT [1967] 65 ITR 403 (SC), B. C. G. A. (Punjab) Ltd. v. CIT [1937] 5 ITR 279 (Lahore), Devi Films Ltd. v. CIT [1963] 49 ITR 874 (Mad.), Jadavji Narsidas Co. v. CIT [1963] 47 ITR 411 (Bom.) and a decision reported in 1974 Taxation 18. He, therefore, urged that the order of the Commissioner (Appeals) on this point should be reversed. Consequently, the ITO had rightly charged interest u/s 217 of the Act. 7. The learned counsel for the assessee, on the other hand, strongly supported the order of the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions, he relied on the decision in the cases of Hindustan Trading Corpn. v. CIT [1986] 160 ITR 15 (Guj.), CIT v. Abdul Razak Co. [1982] 136 ITR 825 (Guj.), CIT v. Srivinayaga Pictures [1986] 161 ITR 65 (Mad.), Ishwarchand Gupta 27 ITJ 302, Arvind Kanchanlal 18 BCAJ 90 and Ramnarayan Hariprasad. 8. The learned representative for the department, in his reply, submitted that since the Commissioner (Appeals) has allowed the assessee's claim for deduction of Rs. 4,65,121 as bad debt and since the assessee has not be allowed to argue that the said amount could be treated as business/trading loss. 9. We have carefully considered the rival submissions and we find considerable force in the submissions made on behalf of the assessee. At the outset, we would like to reproduce below the observations of the Hon'ble Supreme Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710, at page 713, which are very illuminative : "Under sub-section (4) of section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal "as it thinks fit". There is nothing in the Income-tax Act which restricts the Tribunal to the determi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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