Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1976-77 - Assessee, as selling agents of one D, sold goods on credit to one H - Agreement governing business relationship of assessee and D stated, inter alia, that payment for goods of D sold by assessee was responsibility of assessee - Certain amount of assessee remained unpaid by H - Whether said amount could be treated as a business loss or alternatively a business expenditure and, hence, said amount was allowable as a deduction - Held, yes Facts The assessee, as selling agents of one D, sold goods on credit to one H. The agreement governing the business relationship of the assessee and D stated, inter alia, that payment for the goods of D sold by the assessee was the responsibility of the assessee. The assessee claimed a certain sum due from H as a bad debt, but the ITO turned down the claim of the assessee. On appeal, the AAC upheld the order of the ITO. On second appeal, the Tribunal treated the said sum as a business loss or, alternatively, a business expenditure and held that the said amount was allowable as a deduction. On reference : Held According to the terms of the agreement governing the business relationship of the assessee and D, payment for the goods of D sold by the assessee was the responsibility of the assessee and, therefore, when H did not pay back the said amount, that liability fell upon the assessee. The business of the assessee being that of selling of goods of D, the Tribunal rightly treated that amount to be a business loss and, alternatively, business expenditure for earning commission income. Accordingly, the said sum was allowable as a deduction. L.K. Sood for the Applicant. ORDER Sodhi, J. - The matter here concerns the writing off of an unpaid debt. 2. The assessee-firm Dayachand Hardial, Amritsar, as selling agents of Delhi Cloth & General Mills Ltd. sold goods on credit to Hari Ram Bhagat Ram. According to the copy of the account of this party in the books of the assessee-firm filed before the ITO at the end of the accounting year on 30-6-1972, there was a debit balance of Rs. 51,186. During the accounting period…

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