Law:

Section:

Section 28(i ) of the Income-tax act, 1961-Business deduction/loss- Assessee-firm engaged a broker in 1954 to raise hundi loans for purposes of its business-on 2-9-1960, broker disclosed to assessee that he had utilised some of hundi loans for his personal use-He made good part of loss and executed a promissory note in respect of balance amount-Assessee opened in its books an advance account and after setting off amount received from broker against amounts paid to various hundi holders, certain sum still remained outstanding against broker-Assessee carried forward this amount up to certain years and ultimately wrote off the same on expiry of limitation period of a pronote-Whether said amount was allowable as business loss in assessment year in which it was written off-Held, on facts,yes Facts For the purpose of raising loans, the assessee-firm engaged the services of a broker who was a partner in a firm X. The assessee gave the broker hundi khokas signed by it in some cases. earlier than the actual receipt of money. The broker confessed to the assessee that he had misappropriated some of the money borrowed on those hundies for his personal use. To make goods the consequential loss to the assessee, the broker transferred the credit balance with a company of Rs. 1.85,000 to the assessee and executed in its favour a pronote from Rs. 1,75,000. The assessee then opened in its books an advance account in the name of the broker and credited the same with an amount of Rs. 1,85,000 and debited to thevarious amounts which it had to pay in order to honour the misused hundies. After setting off the credit balance against the total amount such hundies, a sum of Rs. 1,68,487 remained outstanding against the broker ason31-12-1961. The assessee carried forward the said amount up to 31-12-1964 and finding no possibility of recovering the amount, wrote it off on 31-12-1964. For the assessment year 1965-66, the assessee claimed the sum of Rs. 1,68,487 as a deduction under section 36. The ITO disallowed the claim, observing, inter alia, (i) that the impugned sum was not a bad debt as there was no debtor of the assessee in the name of the broker; ( ii) that the assessee had made…

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