- (1.) The Tribunal, Allahabad, has referred the following question of law under Section 256(2) of the IT Act, 1961, hereinafter referred to as "the Act", for opinion to this Court : "Whether, on the facts and circumstances of the case, the learned Tribunal was justified in allowing the bad debts of Rs. 1,49,433 ?"
(2.) The reference relates to asst. yr. 1985-86.
(3.) Briefly stated, the facts giving rise to the present reference are as follows : For the assessment year in question, the respondent-assessee claimed bad debt of Rs. 1,49,433 on the advances made to M/s La Medica (P) Ltd. of Delhi. Details of loan are given as under : JUDGEMENT_383_LAWS(ALL)5_2005.htm The respondent-assessee in reply to the query raised by the AO, mentioned that the amount was outstanding against M/s La Medica (P) Ltd. as per balance sheet drawn on 16th Sept., 1987, in his individual capacity. The amount has become totally irrecoverable. Therefore, the same has been written off in the books of account as bad debt. It was also pointed out that by a mutual family arrangement, bad debt amounting to Rs. 3,97,000 had been allocated amongst the various members of the family. It was also pointed out that the advances were given to M/s La Medica (P) Ltd. in the year 1977. No interest was received from the company due to financial crisis. The respondent-assessee was 88 years of age and had also expired later on. During his lifetime, he tried his level best to recover the amount but he could recover a sum of Rs. 3,000 only despite several letters written to the company M/s La Medica (P) Ltd. It was also mentioned that the company has written a letter to the respondent-assessee that it was not possible to repay the loan and any legal action against it would be a futile exercise. However, the ITO was of the view that no legal action was taken against M/s La Medica (P) Ltd., therefore, in the absence of any efforts to recover the amount, the claim of bad debt by the assessee could not be allowed. Accordingly, the AO rejected the claim of the respondent-assessee, which order has been upheld by the CIT(A) confirming the action of the AO. Feeling aggrieved, the respondent-assessee preferred further appeal before the Tribunal.;