1968 PLP 203 (PTD)

10,000 A sum of Rs. 10,000 was returned by B. A. Joshi on 24th October 1946. The balance of Rs. 70,000 was carried forward to S. Y. 2003. The assessee wrote off the debt of Rs. 70,000 at the end of S. Y. 2003 and claimed it as a bad debt in the assessment year 1948‑

49. It was disclosed to the Income‑tax Officer that B. A. Joshi was adjudged insolvent on 31st January 1949. The Income‑tax Officer disallowing the bad debt wrote as follows; "The accounting year ends on 12th November 1947, while the debtor is stated to have been adjudicated insolvent on 31st January 1949. Thus, the bad debt claimed had not really become bad during the accounting period which ended on 12th November 1947. It is further seen that the assessee has advanced a further sum of Rs. 50,000 to Gangaram Nathaji in the subsequent year, i.e., S. Y. 2004. It is not understood on what security such huge amounts were advanced to the debtor. It is stated that the debtor was producing certain pictures in the name of Balwant Films. The assessee appears to have claimed the bad debt during the accounting period to reduce the tax liability, as there is a big profit in speculation. Since the debt did not become bad in the accounting period, I disallow the same." A copy of the Income‑tax Officer s order dated 24th March 1953, is Aunexure `A' and forms part of the case. The assessee then appealed to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner it was stated that the advance of Rs. 10,000 on 31st December 1945, was made on the joint security of B.A. Joshi and Gangaram Nathaji Joshi and that the subsequent advances made to B. A. Joshi were on his personal security. This statement was accepted by the Appellate Assistant Commissioner. Nothing further, therefore, turned upon the fact that the assessee had advanced a sum of Rs. 50,000 to Gangaram Nathaji in S. Y. 2004. A statement made by B. A. Joshi on 11th August 1948, before the Official Assignee was produced before the Appellate Assistant Commissioner. A copy of that statement is Annexure `B' and forms part of the case. A schedule was also filed before the Official Assignee on 20th August 1948, which showed the financial position of the debtor B. A. Joshi as follows: Assets: Rs. Film Ajka Farhad ... ... ... 1,05,000 Other Debtors ... ... ... 29,000 Mortgage taken on film Ajka Farhad ... 45,000 Other creditors including Rs. 70,000 due to appellant ... ... ... 1,30,000 The Appellate Assistant Commissioner dismissed the appeal saying that the debt had not become bad during the accounting period. A copy of the Appellate Assistant Commissioner's order is Annexure `C' and forms part of the case. The Appellate Assistant Commissioner did not place reliance on a statement made by the debtor to the effect that the repayment of the loan was demanded in September 1947. It appears from the Appellate Assistant Commissioner's order that a letter was produced before him to show that the picture Ajka Farhad, which the debtor had produced, was offered to be purchased for Rs. 60,000 in September 1947. The letter is not on the file of the Appellate Assistant Commissioner.

8. The assessee then appealed to the Appellate Tribunal. It appears from the facts as placed before the Tribunal that the adjudication order was passed on 20th July 1948, and a creditor's petition for adjudging him insolvent was presented in March 1948, or thereabout. It was also brought to the notice of the Tribunal that an order adjudging B. A. Joshi was annulled by the Court on 6th September 1950. A copy of the order of annulment is Annexure `D' and forms part of the case. It is not clear why a copy of this order was produced by the assessee before the Tribunal. The Tribunal considering all the material that was placed before it held as follows: "On the material placed before us, we consider that there are no justifiable grounds to come to the conclusion that the debt has become irrecoverable during the accounting year. It is premature to treat the debt as a bad debt." A copy of the Tribunal's order giving the reasons in detail is Annexure `E' and forms part of the case.

9. The assessee made an application under section 66(1) of the Indian Income‑tax Act on 23rd April 1954. The questions of law suggested by the assessee were as follows: "(i) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the debt did not become irrecoverable, or doubtful during the accounting period. (ii) Whether, in view of the finding of the Appellate Assistant Commissioner, the Tribunal was justified in giving a finding that there is no material on record to show that `the two pictures were mortgaged on the dates mentioned'."

10. The assessee was a money‑lender. The loans advanced to B. A. Joshi were advanced in the course of the assessee's money‑lending business. The question of a debt becoming doubtful does not arise in view of the language used in section 10(2) (xi) of the Act. The only question which the Tribunal had to determine was: whether the loan which the assessee had advanced to the debtor had become irrecoverable in S. Y. 2003, and the Tribunal's finding is that there was no sufficient material to hold that the "debt" had become irrecoverable in the year of account. The question of law that would, therefore, arise is: "Whether there was evidence on the record for the finding of the Tribunal that the loan had not become irrecoverable in S. Y. 2003?"

11. As directed by their Lordships, we refer the question set out in paragraph 2 above. Y. P. Pandit with S. P. Mehta for the assessee. G. N. Joshi with Advocate‑General for the Commissioner. CHAGLA, C. J.‑‑The question raised on this reference relates to a debt written off by the assessee on the 12th of November 1947, and the debt came to be written off under the following circumstances The assessee advanced Rs. 10,000 to one B. A. Joshi, a film producer, on the 31st of December 1945. In respect of this loan one G. N. Joshi was a guarantor. Thereafter the assessee advanced a further sum of Rs. 70,000 by driblets, but these loans were not guaranteed and they were advanced on demand promissory notes. The last of these advances was made on the 6th of June 1946 ; and, as already pointed out, the debt was written off on the 12th of November 1947, which is the last date of the year of account of the assessee relevant to the assessment year 1948‑

49. The Department took the view that the debt had not become irrecoverable in Samvat year 2003, which is the year of account and the Tribunal agreed with the view of the Department. The question which we have to consider is whether there was evidence on the record for the finding of the Tribunal that the loan had not become irrecoverable in Samvat year 2003 ; and it cannot be said that there is no evidence to this effect. The most important piece of evidence is this, that Joshi the debtor had produced a film by name Ajka Farhad, which film was ready either in August 1947, or in October November 1947, which is not clear from the record; but, in any case, it was ready a short time before this loan was written off. It is difficult to take the view that, while the debtor had such a valuable asset with him which had not yet been exploited it could be said by the assessee that the loan advanced by him to the debtor had become irrecoverable. It is pointed out by the Appellate Assistant Commissioner that the assessee advanced these large amounts without any security because he expected to be repaid out of the exploitation of this film ; and what the assessee does is to write off this loan before the debtor had even had a chance to exploit the film. It may be, as has turned out subsequently, that the film was never released ; but at the relevant date the assessee could not have had knowledge that this film would not be released or that if it was exploited it would be a failure. The other important piece of evidence on which the Income -tax Officer relies is that the assessee had made a large profit in speculation in the year of account and he seems to have claimed this Rs. 70,000 as a. bad debt in order to reduce his liability to pay tax. As against that, Mr. Pandit has drawn our attention to the fact that a suit was filed against the debtor on the 4th of July 1947, by a firm of the name of Amichand Bhagaji &. Co. and this very firm was one of the petitioners in a petition preferred on the 23rd of March 1948, to adjudicate Joshi insolvent and in fact Joshi was adjudicated insolvent on the 20th of July 1948. Now merely because a suit was filed on the 4th of July 1947, it could not make the assessee feel that there was no hope of recover ing this loan from the debtor. The insolvency proceedings did not start till after the debt had been written off and there is nothing to show that the assessee felt or knew that 'there was any connection between the filing of this suit and the ultimate adjudication of, Joshi as insolvent. Mr. Pandit has then asked us to consider the scheme of section 10(2) (xi) and he says that, if Rs. 70,000 is written off by the assessee, the Income‑tax Officer must estimate what part of this Rs. 70,000 is irrecoverable, and inasmuch as the Income‑tax Officer has not done so he has not discharged his statutory function under section 10(2) (xi). Now under section 10(2) (xi) it is open to the Income‑tax Officer to say that no part of the bad debt claimed by the assessee had become irrecoverable in the year of account, or he may say that part of it had become irrecoverable. In this case it is clear from his order that he takes the view that no part of this Rs. 70,000 had become irrecoverable. As the only question before us is whether there is evidence to support the finding of the Tribunal, it is difficult to accede to Mr. Pandit's contention that the finding is without any evidence. There is no doubt that in fact Rs. 70,000 were never recovered by the assessee from his debtor. As we had occasion to point out 'before, the present income‑tax law with regard to bad debts makes the position of the assessee extremely difficult. He may write off a debt in a particular year and may claim it and the claim may be disallowed. In the next year he cannot make that claim because it would be urged against him that he did not write off the debt in that year. Therefore, the assessee always finds himself on the horns of a dilemma and it is the duty of the Department to take a sympathetic view of the matter if in fact the debt was never recovered. Therefore, if the debt was not allowed to 'the assessee in the year of account, there is no reason why the Department should not consider allowing him this debt in the next year when admittedly the debt became irrecoverable, although the assessee may not have written it off in that year. The result is that we must answer the question submitted to us in the affirmative. Assessee to pay the costs. No order on the motion. No order as to costs of the motion. Question answered in the affirmative.