VITHALDAS H DHANJIBHAI BARDANWALA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Tribunal, Ahmedabad Bench 'B', has referred the following question to us for our decision under S. 256(1) of the IT Act. The said question reads thus :

(2.) IN order to appreciate the nature of the controversy posed for our consideration in the present reference, it is necessary to have a glance at the relevant facts. The assessee firm is a firm which is engaged in the manufacture of tins, ghamelas and various other items. It is functioning at Jamnagar. Tins are manufactured from tin plates while ghamelas from tin sheets. For the relevant asst. yrs. 1967 68 and 1969 70, the assessee firm had claimed allowance on account of bad debts. An amount of Rs. 54,145 was due to the assessee from one Mansukhlal Nathulal on account of sale of ghamelas to him by the assessee firm. The said party lost heavily in forward business and became a pauper. The amount of Rs. 54,145 which was due from him was, therefore, written off by the assessee firm by debiting the said amount to the profit and loss account and crediting to bad debt reserve account without any entry in the debtor's account in the books of the assessee firm.

(3.) SIMILARLY , in the return of income for the asst. year 1969 70, the assessee firm had claimed deduction of Rs. 10,807 by way of bad debt. The case of the assessee was that in the jaggery account, the aforesaid amount was due from one Tapu Karsan and the dues from Tapu Karsan had become bad and irrecoverable and, therefore, it was written off by debiting to the jaggery account of the said business, the balance of which account was ultimately transferred to profit and loss account with a corresponding credit to the bad debt reserve account. The ITO disallowed this claim of the aforesaid bad debt of Rs. 10,807 on the ground that the amount was not written off by writing off the accounts of the former Tapu Karsan and instead it was written off by debiting to the jaggery account and making a corresponding credit entry in the bad debt reserve account which, according to the ITO, was not a proper mode of writing off of the bad debts in the books. The AAC, on the other hand, took a contrary view and, following one decision of the Bombay High Court in the case of CIT vs. Jwala Prasad Tiwari (1953) 24 ITR 537, held that the requirements of S. 36(2) (i)(b) were fully complied with by the assessee and, hence, allowance for the said bad debt was permissible to the assessee.