COMMISSIONER OF INCOME TAX Vs. RAM GUPTA

JUDGEMENT

(1.) THE Tribunal, Allahabad, has referred the following question of law under Section 256(2) of the IT Act, 1961, hereinafter referred to as 'the Act', for opinion to this Court : 'Whether, on the facts and circumstances of the case, the learned Tribunal was justified in allowing the bad debts of Rs. 1,49,433 ?'

(2.) THE reference relates to asst. yr. 1985 -86.

(3.) THE Tribunal vide para 9 of its order dt. 14th Sept., 1993, accepted the claim of the respondent -assessee by observing as under : '9. We have considered the rival submissions and have gone through the evidence filed on record. Letter of the assessee and reply of M/s La Medica (P) Ltd. established the fact that the assessee made earnest efforts to recover its amount from the company but the company was in a financial crisis. Therefore, it could not pay back the amount. Under these circumstances, the assessee has written off this amount. In the case of Jethabhai Hirji & Jethabhai Ramdas v. CIT : [1979]120ITR792(Bom) , the Hon'ble Bombay High Court has observed that whether a debt has become a bad debt is an objective fact to be determined objectively and the determination must be left to the AO. The fact that the assessee had not taken steps by way of legal proceedings against the debtor would not automatically justify the finding that he was not entitled to write off the amount as a bad debt. Nor would the fact that an assessee, subsequent to the Write off a debt, continued legal proceedings against the debtor necessarily lead to the conclusion that the write off was improper or lacked bona fides. The issue of recovery should be considered from the point of view of a businessman. Keeping in view the observations of the Hon'ble Bombay High Court and applying the same to the facts of this case here, we find that the assessee had served a notice and in reply to that notice, the company has shown inability to pay the amount due to financial crisis. This is sufficient evidence to know that the amount is irrecoverable. Therefore, in the point of view of the businessman, the assessee has written off the debt as a bad debt. We, therefore, feel that the CIT(A) has gone wrong in not allowing this amount as bad debt. We, therefore, set aside the order of the CIT(A) and direct the AO to allow the same.'