Law: Income Tax Act, 1961

Section: 256

Income-tax----Deduction---Bad debt---Question whether debt is bad is one of fact ---Not open to High Court in a reference to reappreciate evidence ---Assessee supplying goods to a party in Cuttack---Financial position of party weak and, inadvisable for assessee to have further transactions with debtor firm. ¬Assessee receiving a certain amount in full, and final settlement of sums due from firm and writting off balance as bad debt ---I.T.O. disallowing, claim for deduction as bad debt---Transaction took place in ordinary course- of business---I.T.O. failing to examine firm and no material to show that firm in sound financial position---Nothing suspicious about transactions between assessee and firm---Amount written off as bad debt is allowable deduction. The question whether a debt is bad is one of fact and if there is some evidence to justify the conclusions of the Tribunal, it is not open to the High Court in a reference under section 256 of the Income Tax Act, 1961, to reappreciate the evidence. The assessee, who was supplying goods to a party in Cuttack, noticed that the financial position of the said party had become weak and considered it inadvisable to have further transactions with the said party. On September 27, 1976, the assessee entered into an agreement with the debtor firm whereby the assessee agreed to receive a sum of Rs.12,000 in full and final settlement of the sums due from the firm. This agreement was acted upon and the assessee wrote off the balance of Rs.45,370 as a bad debt in the assessment year 1977-78. The assessee claimed deduction of the amount of Rs.45,370. The Income-tax Officer rejected the claim for deduction on the ground that the same had been written off with an ulterior motive, because the assessee had not taken any legal steps for the recovery of the dues and that the transaction with the firm was not genuine. On appeal, the Commissioner of Income-tax (Appeals) also rejected the claim for deduction. On further appeal, the Tribunal found that the transaction between the assessee and the firm took place in the, ordinary course of the business that the Income-tax Officer failed to examine the firm and had no material before him…

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