COMMISSIONER OF INCOME TAX Vs. SRIVINAYAGA PICTURES

JUDGEMENT

(1.) IN compliance with the directions given by this court, the INcome-tax Appellate Tribunal, Madras, has referred the following question :

(2.) THE assessee is a registered firm engaged in business as "a film producer". It would appear that the picture "Moondreluthu" produced by the assessee was screened in Maharaja Talkies, Madras, through a distributor and the assessee accounted for the collections only for about 20 days, from May 10, 1968, to May 31, 1968. However, when the folio of the said Maharaja Talkies in the books of the assessee was examined, it was found that some further collections and receipts from the said Maharaja Talkies were credited to the accounts and it was found that these entries had also been reversed with the narration that the relevant cheques were dishonored. Rejecting the contention of the assessee that the fact that the cheques were dishonoured would show that no collections accrued to the assessee and hence they were not taken to the revenue account, the Income-tax Officer held that since the assessee is maintaining the accounts on mercantile basis, it is but proper that the collections showed should be accounted for in revenue account as and when amounts are due from the exhibitor and that if at a later date these amounts are not realisable, the proper way would be to claim them as bad debts. In that view, the Income-tax Officer added back a sum of Rs. 60,550 to the total income for that year. When the matter was taken up in appeal before the Appellate Assistant Commissioner, it was found that the receipt amounting to Rs. 20,000 was in fact accounted for twice by the Income-tax Officer and hence the correct amount that will have to come up for consideration for addition was only Rs. 40,550. THE Appellate Assistant Commissioner confirmed the view of the Income-tax Officer that since the mercantile system had been followed, the appellant will have to necessarily show the receipt of the cheques as income. Alternatively, the assessee contended that the cheques bounced, that he had made reverse entries relating to these cheques in the accounts and that when the appellant tried to recover the monies, he found the party concerned had run away. It was also stated that an attempt to file a suit was given up as they were advised by their advocate that the court fee alone would come to at least Rs. 7,000 and that it was not worthwhile to file a suit and that, therefore, the said amount should be allowed as bad debt. THE Appellate Assistant Commissioner was of the view that in the absence of adequate evidence to show that the amount had actually become bad and irrecoverable, it is not possible to hold that they had become bad or irrecoverable and that the same cannot be allowed as bad debts. On a further appeal, the Tribunal held that considering the fact that the assessee was maintaining the mercantile system of accounting, the monies due to the assessee from the exhibitor would definitely be income assessable in their hands. However, on the alternative plea, the Tribunal held that there was no chance of recovery of the amount from the exhibitor as the party in question had absconded and that the cost of litigation for filing a suit would be so prohibitive and that, therefore, the amount due to the assessee from the distributor during the year should be considered as bad debt allowable for that year. In that view, the Tribunal directed the deletion of the amount ofRs. 40,550. As already stated, at the instance of the Revenue, the question set out above has been referred.

(3.) THUS, though the onus of proving that it had become a bad debt is on the assessee, the Department cannot insist on foolproof evidence. The Tribunal has believed the evidence of the assessee and we are satisfied that this view is not unreasonable. Therefore, we confirm the finding of the Tribunal that the debt had become a bad debt.