S.H.KAPADIA,J. - (1.)THE appellant is engaged in the business of dealing in cotton. The appellant filed its return of income for the year ending 22nd Oct., 1987, relevant to asst. yr. 1988 89 returning income of Rs. 14,13,280 along with copy of the accounts and tax audit report. The return was filed on 11th Aug., 1988. In the P&L a/c for the year ending 22nd Oct., 1987, the assessee claimed bad debt in respect of an amount of Rs. 5,87,531.01 due from M/s Podar Mills Ltd. (Bombay). The assessee also claimed bad debt in respect of the amount of Rs. 6,25,704.14 due from M/s Podar Spinning Mills (Jaipur).
(2.)M /s Podar Spinning Mills (Jaipur) and M/s Podar Mills Ltd. (Bombay) were taken over by the Central Government vide Notification dt. 18th Oct., 1983, issued under S. 4(3) of the Textiles Undertakings (Taking Over of Management) Ordinance, 1983. In the circumstances, the assessee contended before the AO that it was impossible to recover the debts from M/s Podar Mills Ltd. (Bombay) and M/s Podar Spinning Mills (Jaipur). The assessee further pointed out that even the financial position of the acquiring body, viz., National Textile Corporation, which was appointed as a custodian by the Central Government, was very weak and, therefore, as a prudent businessman, the assessee was entitled to write off the bad debts under S. 36(1)(vii) r/w S. 36(2) as it stood before 1st April, 1989. This claim of the assessee was rejected by the AO vide assessment order dt. 22nd Oct., 1987. According to the AO, the assessee firm had not taken any steps for recovery of the debts for the mills whose management was taken over by the Central Government. Accordingly, the AO disallowed the claim for bad debt in respect of the above two mills as premature. Being aggrieved by the assessment order, the assessee carried the matter in appeal to the CIT(A) who confirmed the order of the AO. The matter was carried in appeal to the Tribunal. The Tribunal has confirmed the order of the CIT(A). Consequently, the assessee has come before us under S. 260A of the IT Act. Arguments
Mr. Jasani, learned counsel appearing on behalf of the appellant assessee, invited our attention to various provisions of the Ordinance under which the management of the above two mills was taken over by the Central Government. Mr. Jasani briefly submitted that under the said Ordinance, all assets have been taken over by the Central Government and all liabilities are left over with the textile companies. He contended that under the Ordinance, recovery by way of receiver/liquidation was ruled out because permission was required to be taken from the Central Government before such recovery could be made. He further contended that although filing of the suit was not barred under the Ordinance, a prudent businessman was entitled to take the view after reading the Ordinance not to put good money for recovery of bad money. He further submitted that the accounts of the mills in the books of the assessee for the earlier year ending Diwali 1983, year ending Diwali 1984, year ending Diwali 1985, and year ending Diwali 1986, clearly showed that no amount was received from the said two mills during the asst. yrs. 1985 86, 1986 87, 1987 88 and, therefore, ultimately, in the assessment year in question the assessee had no option but to write off the claim as bad debt. In this connection, he relied upon Exhibit B to the paper book. Mr. Jasani also invited our attention to the judgments of the Division Benches of the Bombay High Court in Jethabhai Hirji & Jethabhai Ramdas vs. CIT 1978 CTR (Bom) 415 : (1979) 120 ITR 792 (Bom) at 811; Lord's Dairy Farm Ltd. vs. CIT (1955) 27 ITR 700 (Bom) at 708. He further submitted that in the case of a sister concern of the assessee, on identical facts, the Tribunal had allowed the claim of bad debt aggregating to Rs. 12,13,235 for the same assessment year. He, therefore, submitted that, in this case also, the Tribunal should not have disallowed the claim for bad debt made by the assessee.

(3.)MR . R.V. Desai, learned senior counsel for the Department, on the other hand, contended that, in this case, no demand was ever raised by the assessee on the textile companies. That no suit was ever filed against the two textile mills whose management was taken over by the Central Government under the Ordinance. Mr. Desai submitted that under the Ordinance, various amounts were payable by the Central Government on month to month basis to the textile mills. He contended that no claim was ever lodged with the textile mills by the assessee. He contended that the claim for bad debt was, therefore, premature during the asst. yr. 1988 89. He contended that the Department has not disputed non recovery of the amount from the two mills. However, in this case, we are concerned with the law applicable prior to 1st April, 1989, under which the assessee was required to establish not only that the amount had become a bad debt but also that it had become irrecoverable in the year in which it is written off. He contended that under the Ordinance, it was open to the assessee to seek permission from the Central Government to recover the amount by way of liquidation/receiver. That, no such petition was made to the Government seeking permission to recover the amount vide liquidation/receiver. He relied upon the judgment of the Calcutta High Court in the case of Rallis India Ltd. vs. CIT (2001) 165 CTR (Cal) 661 : (2000) 109 Taxman 279 (Cal) in support of his contention. He accordingly submitted that no case for interference has been made out by the assessee.