Law:

Section:

Section 36(1)(vii) of the income-tax act, 1961-Bad debt-Four debtor-mills, from which debts were due to assessee-mill, were, nationalized on 1-4-1974 and factum of irrecoverability of aforesaid debts was not disputed by revenue-Tribunal held that as there was no possibility of recovery of said debts as on 1-4-1974, those debts could be treated to have become bad and doubtful on 31-3-1974 and assessee was entitled to write off impugned debts in assessment year 1974-75 corresponding to accounting year ending on 31-3-1974-Whether tribunal was justified-Held, on facts, yes. Section 256(1) of the income-tax act, 1961-Reference-Question of fact-Whether in view of facts mentioned under the caption 'bad debt', a question of law arose from tribunal's order-Held, no. Facts The four mills, from which the debts were due to the assessee-mill, were nationalized with effect from 1-4-1974. The liabilities of the four debtor-mills had exceeded their assets and there was no possibility of any recovery from the aforesaid four mills as on 1-4-1974. The assessee wrote off the said debts as bad in the assessment year 1974-75, corresponding to the accounting year ending on 31-3-1974. The ITO as well as the AAC did not accept the claim, holding that the assessee's claim was premature and the said debts became bad only in the assessment year 1975-76 and could not be claimed as a deduction in the year 1974-75. The Tribunal, however, accepted the assessee's claim and held that as there was no possibility of any recovery of the impugned debts on 1-4-1974, those debts should have been treated to have become bad on 31-3-1974 and, therefore, the assessee was justified in writing off the debt in the assessment year 1974-75. On reference application under section 256(2) : Held The revenue had not disputed the fact that the debts due to the assessee had become irrecoverable after the Nationalization Act came into force on 1-4-1974. If the impugned debts had become irrecoverable as on 1-4-1974, then it could easily be assumed that the debt became bad and irrecoverable as on 31-3-1974. So long as the revenue did not dispute the factum of irrecoverability of the debt as on 1-4-1974, the assessee…

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