INDEQUIP LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, made at the instance of the assessee, the Tribunal has referred the following question of law to this Court for opinion :

(2.) THE assessee is a private limited company. It carried on business as dealers and suppliers of mill gin stores and clothes. It was also supplier of Burshane Gas. The relevant assessment year is 1970 71. The previous year was year ended on 31st March, 1970.

(3.) THE ITO did not accept the reversal of the entries by the assessee. According to him the amount attributable towards the written off debt from goods account was only 50% thereof and the balance 50% was on account of the amount of loan advanced by the company. He, therefore, allowed as deduction, only the amount written off in the goods account and disallowed the amount which was written off in the loan account as the same, in his opinion, amounted to capital loss which was not an allowable deduction under S. 36 or any other provision of the Act which was relevant in computing the income under S. 28 of the Act. On appeal, the AAC approved the decision of the company to write off the full amount from the goods account. The AAC, therefore, allowed full deduction an account of the amount to the extent of debt which were due from the textile mill company on account of goods supplied to it as bad debt under S. 36(1)(vii) of the Act. He, however, did not allow the deduction for balance of Rs. 1,38,148 which was written off from the loan account as, according to him, it was a capital loss which was not deductible in computing income under S. 28 of the Act. The decision of the AAC was approved by the Tribunal. As a result, the claim of the assessee to the extent of Rs. 1,38,148, which was the amount written off from the loan account, remained disallowed. According to the assessee, the Tribunal was not justified in its conclusion. Hence the reference.