COMMISSIONER OF INCOME TAX Vs. DEVI CHIT FUND

JUDGEMENT

(1.) AT the instance of the Revenue, under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the following questions of law have been referred to this court for its opinion :

(2.) THE assessee is a firm carrying on business in money-lending and conducting chits. While filing the return for the assessment year 1971-72 for the accounting period ending March 31, 1971, the assessee claimed allowance for bad debts in the accounts of C. L. Badrinarayanan, and C. B. Lakshminarayanan and others, amounting to Rs. 40,254. THE total amount due from the debtors referred to above was Rs. 62,000 and 50% of this amount, i.e., Rs. 31,000, along with court costs of Rs. 9,254, totalling Rs. 40,254 was written off in the books of account of the assessee. According to the assessee, the debtor had incurred heavy losses and had closed down their business and their properties had also vested in the official receiver owing to their adjudication as insolvents. THE Income-tax Officer took the view that the write-off was premature, as the official receiver had not declared any dividend and disallowed the claim of the assessee for the write-off of this amount. On appeal by the assessee, the Appellate Assistant Commissioner also upheld the disallowance on the ground that there was no communication regarding the total assets and liabilities of the debtors and that the insolvency proceedings had also not become final. On further appeal by the assessee to the Tribunal, it took into account the several steps taken by the assessee in securing decrees by institution of suits and the execution proceedings levied therein as well as the affidavit of assets and liabilities filed by the insolvents and concluded that all the properties of the debtors were under attachment at the instance of several creditors and the insolvents had also inflated the value of the assets and as the liabilities exceeded the value of the assets, there was no reasonable prospect of the assessee recovering any amount from the debtors and in that view, upheld the claim for write off of the bad debt. That is how the two questions of law set out earlier have come up before this court for its opinion and the assessee, though served with notice, has not appeared in person or through counsel.