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1 - 5 of 5 (0.18 seconds)The Indian Penal Code, 1860
Section 72 in The Income Tax Act, 1961 [Entire Act]
Jethabhai Hirji And Jethabhai Ramdas vs Commissioner Of Income-Tax, Bombay ... on 18 November, 1977
4. We have considered the submissions of both sides on this issue and we have perused the relevant material on record, we find that though the genesis of the transaction could be granted as a business loss because the assessee had to pay the amount due on consignment basis to IPCL, such loss would be converted into a trade debt as soon as the purchasers agreed to reimburse the assessee. There is material on record to show that the assessee was negotiating with them and they had agreed to pay the amount and even issued cheques which however bounced. That was the reason why the assessee had to make a criminal complaint as well as filed a suit. Subsequently, the assessee found that there was no possibility of recovering the money and accordingly wrote off the amount in this year. The real question, therefore, is whether the decision of the assessee to write off the amount in this year could be regarded as an honest judgment on the material available. We find nothing on record to show that the decision was not a bonafide decision. The revenue pointed out the fact that the assessee had filed a suit only on 10-10-1984 and, therefore, it was too early for the assessee to have written off the debt on 31-3-1985. But as pointed out by the Bombay High Court in the case of JethabhaiHirji and Jethabhai Ramdas v. CIT [1979] 120 ITR 792 the mere fact that legal proceedings continued does not necessarily lead to the conclusion that the write off was improper or lacked bona fides. The other point stressed by the revenue was that the assessee was having a tax advantage in writing off the debt this year. We do not see anything wrong with this because a prudent and commercial decision would also include as a relevant fact possibility of tax mitigation. It is after all a notorious fact that civil suits take decades to be decided and it may not be wise decision on the part of any one to await the outcome of the civil litigation for writing off a bad debt. On the other hand, the revenue has nothing to lose because as and when any amount is recovered, it will have to be shown as income and in the case of the assessee, which is a company, the tax rate being the same year after year, there would not be any loss to the revenue either. In the circumstances, it would unreasonable to charge the assessee of having written off the debt prematurely. We are, therefore, satisfied that there was no mala fides in writing off the bad debt and we accordingly allow the deduction of bad debt in computing the total income.
Section 72 in The Indian Penal Code, 1860 [Entire Act]
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