SENGUPTA,J. - (1.) IN this reference under s. 256(2) of the IT Act, 1961 ('the Act') for the asst. yr. 1979-80, the following questions of law have been referred to this Court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the loans of Rs, 40,262 and Rs, 6,122 for the Associated Industrial Products Company and Mining and Equipments Manufacturers, respectively, have become recoverable in the relevant year and in that view in allowing the assessee's claim of bad debts for the above sums? 2. Whether, there was any material for the Tribunal to hold that the assessee could have entertained a bona fide belief that the loans of Rs. 40,262 and Rs. 6,122 from Associated Industrial Products Company and Mining and Equipment Manufacturers, respectively, became recoverable and whether such finding and order of the Tribunal is otherwise unreasonable and perverse?"
(2.) SHORTLY stated, the facts are that the assessee, Algemene Bank Netharland, N.V., is a non- resident company doing banking business in India. The assessment year involved in this reference is 1979-80. The assessee claimed the following two items as bad debts while computing the income from business Regarding the first item, the said party was given overdraft facility on the pledge of goods. The party did not repay the loan. The pledged goods were sold during the previous year under consideration and a sum of Rs.503 was realised. After getting the report dt. 8th Feb., 1978 of a private investigator who reported that there was no chance of any recovery, the balance of Rs. 40,261 due from that party was written off as bad debt. By an order of the Court the partners of the aforesaid debtor-firm were declared insolvent. The ITO rejected the claim of the assessee on the ground that the assessee obtained a decree in its favour and so there was still a chance of realisation of the debt. On appeal, the CIT (A) confirmed the action of the ITO. Regarding the second item of Rs. 6,122, the assessee had obtained a decree against the said party and so the ITO disallowed the same on the only ground that there was a chance of recovery. On appeal, the CIT (A) confirmed the action of the ITO.
(3.) THE assessee appealed to the Tribunal and contended that the loans were given in the ordinary course of the banking business carried on by the assessee. In the calendar year 1978 which is the relevant previous year, the assessee came to the clear conclusion on the basis of the investigation made by it that these loans had become irrecoverable notwithstanding the fact that decrees had been obtained against the parties. Relying on the decision in the case of Jethabhai Hirji and Jethabhai Ramdas vs. CIT 1978 CTR (Bom) 415 : (1979) 120 ITR 792 (Bom), it was urged that the claim of the assessee should have been allowed as the assessee bona fidely believed that the loans had indeed become irrecoverable and so wrote off the same from its books of account. On the other hand, it was urged on behalf of the Department that there was still hope of recovery because of the decrees obtained by the assessee even though the investigation of the assessee showed that there were no assets of the debtors to satisfy the decrees.;