JUDGMENT
T.N. Chopra, A.M.
1. This appeal has been filed by the Revenue against the order of the learned CIT(A), dt. 28th Nov., 1995, for asst. yr. 1993-94. The only ground taken by the
Revenue is against the deletion of addition of Rs. 1,07,469 made by the AO on
account of bad debt.
2. The CIT(A) deleted the addition accepting the contention of the assessee
that the, claim of bad debt, even if not allowable under the provisions of Section
36(1)(vii), the assessee is entitled to deduction of the claim as business loss
under Section 28(1) of the Act.
3. The assessee-firm deals in trading of cottonyarn and fibre. An amount of Rs. 1,07,469 outstanding against the firm M/s Chimanlal Sankalachand has been written off during the year. Before the AO the assessee explained that it had transactions with the said firm for purchase and sale of cloth during the financial year 1990-91 relevant to asst. yr. 1991-92. An amount of Rs. 97,032 outstanding against the firm on account of certain sales as well as certain advances given to the said firm against the goods to be supplied. The amount has been written off since the said firm has closed and due to financial difficulties of the said firm the amount has not been recovered. Copy of account of the said firm in the books of the assessee was duly filed and examined by the AO. The AO held that the debt has arisen on account of advances made by the assessee to the said firm and, therefore, is not covered under the provisions of Section 36(2)(i). The AO accordingly disallowed the amount of Rs. 1,07,469.
4. The assessee carried the matter in appeal before the CIT(A). The CIT(A) held that the provisions of Section 36(2)(i) do not apply inasmuch as the amount written off represents the advances paid by the assessee to the said firm against the supply of goods and, therefore, cannot be treated as bad debt allowable under Section 36(1)(vii) r/w Section 36(2)(i). The learned CIT(A), however, referred to the Mowing decisions of the Gujarat High Court and allowed the claim as a business loss closely connected with the business carried on by the assessee :
1. CIT v. Abdul Razak & Co. (1982) 136 ITR 825 (Guj); and
2. CIT v. Equitorial (P) Ltd. (1974) Taxation 37(3) 81
5. We have carefully considered the facts and circumstances of the case and are inclined to uphold the conclusion of the learned CIT(A). There is no denying the fact that the advances have been made by the assessee during the course of business against supply of goods by the said party and non-recovery of such advances clearly represents loss suffered by the assessee during the course of business transactions and, therefore, the assessee is fully entitled to deduction in respect thereof. The decisions of the Gujarat High Court relied upon by the learned CIT(A) fully supports the view taken by us above.
6. In the result, the appeal of the Revenue is dismissed.