Commissioner Of Income-Tax vs Indian Aluminium Cables Ltd. (No. ...
1989 Latest Caselaw 25 Del

JUDGMENT

Leila Seth, J.

1. This is an application by the Commissioner of Income-tax under section 256(2) of the Income-tax Act, 1961, for directing the Tribunal to draw up a statement of case and refer the following question of law for the opinion of this court:

"Whether the Tribunal was correct in law in allowing deduction on account of bad debt (Rs.41,006) in view of the condition laid down in section 36(2)(i)(a) having not been fulfillled in the present case?"

2. New Janta Transport Co. was the assessed's transport contractor from 1963 onwards. There was no written contract but they rendered services and were paid some advances. On presentation of their bills, they were paid at curtailed rates. Consequently, a sum of Rs. 41,006 was due in their account as on April 1, 1969. After adjusting the security deposit of Rs. 5,000, the balance was written off in the relevant assessment year, being 1972-73 after talking legal advice. The advocate informed the assessed that it would not be worthwhile filling a suit against the party and in any case a suit filed in Bombay City Civil Court would be very expensive.

3. The Income-tax Officer rejected the debit balances above Rs. 500 as no legal steps had been taken for recovery of the amounts.

4. On appeal by the assessed, the Appellate Assistant Commissioner wrote off the amount as a bad debt.

5. The Income-tax Appellate Tribunal noticed that in the beginning of the year, the assessed had considered the amount good because filing of a suit was contemplated. However, after receipt of the legal opinion, the idea of filing a suit was given up. Further, even though legal opinion was dated April 10, 1972, since the company's books for the year 1972-73 were still open, the amount was rightly written off. The Tribunal also observed that there was no bad debt in the strict sense as what was written off was only an advance for expenditure, and it was of the opinion that the Appellate Assistant Commissioner was justified in deleting this addition.

6. The application moved by the Commissioner of Income-tax under section 256(1) of the Act was rejected as the question was a pure question of fact.

7. Learned counsel for the Commissioner contends that the amount could not have been written off as a bad debt and, consequently, a question of law arises.

8. As noticed above, the Tribunal clarified the position and indicated that there no bad debt in the strict sense of the term and what was written off was only an advance expenditure which was a justified deletion.

9. Consequently, it is apparent that what has been allowed is not writing off as a bad debt but as an advance for expenditure in the computation of income. This is a finding of fact and, in these circumstances, no question of law arises.

10. The application is rejected. However, we make no order as to costs.

11. Petition dismissed.