COMMISSIONER OF INCOME TAX Vs. RAVINDRA C GAJIWALA

JUDGEMENT

(1.) THE Tribunal, Ahmedabad, Bench 'A', has referred the undermentioned question for our opinion, exercising the jurisdiction under S. 256(1) of the IT Act, 1961 :

(2.) THEY had purchased the goods from Subhash and Co. and the broker was entrusted with certain amount. On or about 13th May, 1970, the broker had absconded without leaving behind any trace in respect of his whereabouts, and consequently, the assessee firm could not realise the price of the goods supplied to two dealers, namely Vijay Fabrics and Mahesh Textiles. In the same way the assessee firm could not find any trace in respect of the amount of Rs. 22,600 which was entrusted to the broker's firm. It appears that a large sum of the assessee's capital thus stood blocked up, and the creditors of the assessee firm had started pressing them for the payment of their dues. The assessee, thereon had made the position of their stringent financial setup clear to the creditors, and therefore, ultimately the kasar was allowed by the creditors to the assessee firm. The following table shows the name of the creditors and the kasar amounts allowed : It would thus be clear that the total amount in sum of Rs. 53,803 was allowed as kasar in favour of the assessee firm. The assessee had closed the accounts of the above said eight parties, after making part payment in terms of settlement and had credited the kasar amount of the balance of Name of the party Kasar allowed Motiwala Silxk Fabrics (Rs. 4,600 1,533) . 2. Hindustan Silk Industries Rs. 3,067 3. Jayantilal Hiralal, 1,439 4. Solapurwala Textiles, 8,884 5. Kinkhbwala Traders 2,281 6. M. Harikrishna Textiles 25,242 7. Jagdish Textiles Industries 4,209 8. Pranjivandas Gungaram and Bros. 5,250 . Rs. 53,803 Rs. 53,803 and the same was carried forward for Samvat Year 2026 to 2027. This aspect was later on noticed by the IT authorities and, therefore, the ITO concerned, had asked for the explanation of the assessee firm as to why the relief so obtained by the firm, as stated above should not be taken as amounts surrendered against goods purchased and added to the business income. The assessee had represented before the ITO, the circumstances under which the settlement came into existence, alongwith the fact that, there was on their part indeed a promise to make the payment of the above said amount when the financial condition would permit them to do so. It was also pointed out before the ITO that, when the assessee firm had subsequently realised some amount by way of purchase price of a piece of land, sold by them, certain amount was paid to one of the creditors, though the amount was included in the kasar amount. Any how, the ITO had not accepted the abovesaid explanation tendered by the assessee, and had taken the view that the goods were purchased during the course of business and as such the surrendered amount by the creditors was during the course of the business. It was also the view taken by the ITO that even if the assessee had lost certain amount from their creditors, then also the same amount can be taken as bad debts in subsequent years and that, the abovesaid transactions in which the kasar was allowed. Thus, the ITO was of the opinion that the above said amount of Rs. 53,803 so surrendered by the creditors would form a part of the Business income of the assessee during the relevant year liable to be taxed. The abovesaid view is explicit from the assessment order dt. 30th March, 1974, available at Annexure A.

(3.) THE assessee had carried the matter in appeal before the AAC, who in his turn confirmed the decision of the ITO by the appellate orders dt. 11th Aug., 1976, by taking the view that the assessee had paid certain amounts for the purchase of the goods but later on the kasar was allowed to him, and, therefore, there was the reduction in the price of the creditors goods, that, therefore, the abovesaid amount in the form of the kasar had become the income of the appellant and was thus taxable in the year under question. It is in view of these findings, that the AAC had preferred to dismiss the appeal of the assessee by the said orders.