1982 PLP 368 (PTD)

AJMAL MIAN, J: In the above reference opinion of this Court is sought on the following question :‑ "Whether in the facts and circumstances of the case the Tribunal was right in holding that a correct decision order the question whether the amount of Rs. 1,08,602 became bad in the year in question is possible only after final decision of the suit filed by the borrower?"

2. The relevant facts leading to the filing of the above reference are that the applicant Bank (hereinafter referred to as the Bank) maintained a Current Account of Messrs Pakistan Development Corporation Ltd. (herein after suffered to as the borrower). The borrower. opened a fetter of credit for 12196‑18 in April, 1951 for import of safety matches from U. S. S. R. to East Pakistan. The documents for the imported goods were not returned by the borrows and the Bank had to pay cost of the goods and other charges. It seem that the above goods were cleared at Chittagong on 15‑5‑1951 through the Chartered Bank. ..The borrower did not pay the due amount in spite of the repeated demands. Consequently, the above goods were sold in July, 1953 for a sum of Rs. 5,35,225 which resulted in a shortfall of Rs. 91,

000. The Bank required the borrower to make good of the above loss, but it was no done. On the contrary the borrower filed a suit claiming a sum of R3. 58, after adjusting the claim of the Bank. It further seems that on 7‑12‑1955, the Bank claimed from the borrower its aggregate dues amount to Rs. 1,08,602 which was followed by service of a legal notice upon the borrower, which was also not responded to. It further seems that the Bank in the assessment year 1959‑60 claimed the above amount of Rs. I.08,602 due from the borrower as a bad debt. The above claim was rejected by the Income‑tax Officer and the following observations were made :‑ "Bad debts claimed amount to Rs. 1,89,553 which require comment. These consist of 7 items out of which the following have to be disallowed : (1) Rs. 1,08,602. ‑ Due by Pakistan Development Corporation. Proprietor Akhtar Ali. The original advance was as early as 31‑8‑1951 and the last date of receipt is 15‑11‑1954 when goods of the Debtor were sold and realised. Ever since then no legal action has been taken to recover the amount. Even the Bank's legal Adviser has expressed that it has become time‑barred. The claim should have been made long ago. In any case not in this year as it had become bad earlier and cannot have been considered on any account to be a carried forward as good and realisable. The case‑law cited is not applicable to the facts of the case. This cannot be admitted as a deduction." The Bank being aggrieved by the above order filed an appeal which was dis missed by the Appellate Assistant Commissioner of Income‑tax `A' Range, Karachi by the order dated 14‑2‑1968, in which he made the following con cluding remarks :‑ "The arguments advanced by the appellant have been considered. The various facts mentioned by the appellant show a considerable lack of interest in the recovery of this debt on the part of the appellant Bank. The goods were sold in July, 1953, but the borrower was not asked to make good the shortfall till 2‑2‑1954. Nothing happened subsequently for almost another two years and then a letter was sent by the Bank on 7‑12‑1955. The arguments also show that the borrower has filed a suit against the bank claim of Rs. 58,000 as a surplus of sale proceed. The matter is, therefore, still undecided. It is only after the decision of this case that it can at all be decided as to whether any amount was due, from the borrower to the Bank or from the Bank to the borrower."

3. The Bank being aggrieved by the above two orders filed an appeal before the learned Income‑tax Appellate Tribunal Karachi Bench, Karachi which, by its order dated 5th February, 1970 maintained the above two orders and in the concluding remark observed as follows: "We agree with the Appellate Assistant Commissioner that a correct decision on this point is possible only after final decision in the suit filed by the borrower against the Bank. The bad debt is not certainly allowable against the income for the charge year 1959‑60." The Bank moved the learned Income‑tax Appellate Tribunal for making reference to this Court on the question quoted hereinabove in para. I which request was granted.

4. In support of the above question Mr. Ali Athar learned counsel for the Bank has urged that the decision of the suit filed by the borrower was not relevant for the purpose of determining whether the Bank was entitled to claim adjustment of the bad‑debt in question under section 10(2) (xi). On the other hand it has been urged by Nasrullah Awan learned counsel for the respondent that the decision in the suit would have direct bearing.

6. It may be observed that in the suit the claim of the borrower was not that the Bank in fact had received any surplus amount but the claim was based on the averment that the Bank had sold the above consignment below the market price and that if they would have sold it at the market price, it would have resulted in a surplus of Rs. 58,000 after adjusting its claim. In this view of the matter, the result of the suit would have no direct bearing for considering the Bank's claim in question on account of bad debt. In our, view the Income‑tax Department was competent to decline the Bank's claim on the ground that the same was not claimed in the year, in which it should have been claimed or on the ground that in fact the Bank had not suffered any bad debt as claimed. In his order, the Income‑tax Officer had touched upon the question whether the bad debt in question could have been claimed in the year in which it was claimed and held that it should have been claimed in the financial year assessment year earlier than the year in question. If this finding would have been concurred with by the Ist Appellate Court and the learned Income‑tax Appellate Tribunal, the matter would have been con cluded. But we notice that this point had not been adverted to either by the Assistant Appellate Commissioner or by the learned Income‑tax Appellate Tribunal, nor it has been doubted that the entries reflected in the accounts, were not genuine. For the aforesaid reasons our answer to the question framed quoted hereinabove in para.1, is in the negative. However, it will be open to the Department to take further action in accordance with law. Appeal dismissed.