Judgment:
Leila Seth, J.
1. By this application under section 256(2) of the Income-tax Act, 1961, the commissioner of Income-tax prays that we direct the Income-tax Appellate Tribunal to draw up a statement of case and refer the following two questions of law for the opinion of this court :
'1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the payment of Rs. 84,143 it Nazi teaching was an allowable deduction in the hands of the assessed
2. Whether the Income-tax Appellate Tribunal was correct in law in holding that the bad debts of Rs. 1,25,271 were genuine and ripe for write off in the year under consideration ?'
2. The relevant assessment year is 1975-76. The assessed claimed deduction of a sum Rs. 84,143 as an amount paid as commission to Nazi Teach-ins. The Income-tax Officer did not allow this deduction and the Commissioner of Income-tax (Appeals) confirmed the order of the Income-tax Officer. While doing so, he observed that, before a deduction could be allowed. it had to be proved that the payments and transactions were genuine. He noticed that the amount of commission said to have been paid to Nisei Teach-ins was a large amount and on inquiries made by the Income-tax Officer at the address indicated by the assessed, it appeared that no such party ever operated or existed at the said address, this was confirmed by the landlord of the building as also the tenant who claimed to be occupying the said premises, 129-D, Camellia Nagger, Delhi, since 1959. Though this material was placed before the assessed. It was not able to furnish any evidence to establish the genuineness of the party or the payments.
3. On further appeal by the assessed, the Tribunal, while dealing with this matter, observed that the two reasons for the Commissioner of Income-tax (Appeals) disallowing the commission to Nisei Teach-ins was that Nisei Teach-ins was not an income-tax assessed and was not traceable at the given address. The Tribunal felt that this party had 'also rendered services'. It disagreed with the two reasons given by the Commissioner of Income-tax (Appeals) for not allowing the payments and held that the amount should be allowed especially as a demand draft of Rs. 65,000 had been issued in favor of Nisei Teach-ins after debiting the cash credit account of the assessed and this was clinching evidence.
4. Mr. Aggarwal, learned counsel for the assessed, contends that the Commissioner of Income-tax (Appeals) had held that this party had also rendered services on the basis of the correspondence with all the parties to whom commission was paid including correspondence between the assessed and Nishi Technos.
5. Mr. Pandey. Learned counsel for the Revenue, disputes this contention of Mr. Aggarwal and further urges that the fact that a demand draft for Rs. 65,000 was issued in favor of Nisei Technos is not conclusive evidence of the existence of the party and/or services having been rendered by it and/or the genuineness of the payment. We think there is force in his argument and a question of law does arise in the facts and circumstances of the case.
6. The second question pertains to an amount of Rs. 1,25,271 alleged to have been written off as a bad debt. The assessed furnished a list of the various amounts written off as bad debts. The Income-tax Officer found that most of these amounts were moneys due from government agencies on account of damages or short supplies and could not have been written off as irrecoverable. Consequently,he called upon the assessed to show when these amounts had become due and what steps had been taken to recover them and why the amounts were being treated as bad debts.
7. The assessed did not furnish any information and the Income-tax Officer noticed that the assessed had been claiming substantial amounts by way of bad debts, in the previous years, which had since been recovered. He, thereforee, felt that 'these were not real bad debts, but these are in the nature of a provision for bad debt.' As such, except for an amount of Rs. 2,000 which pertained to theft of money, he disallowed the claim. The Commissioner of Income-tax (Appeals) upheld the order of the Income-tax Officer.
8. On further appeal to the Income-tax Appellate Tribunal, the Tribunal held that the practice which the assessed had been following in the preceding years with regard to bad debts and their subsequent recovery had been accepted by the Revenue and in the assessment year 1974-75, the Commissioner of Income-tax (Appeals) by its order dated May 12, 1982, had held that the assessed's claim deserved to be allowed on this basis. Consequently, the Tribunal felt that, for the same reason, it should be allowed in this year also.
9. It is not disputed that the assessed placed detailed particulars of various amounts and the reason for their non-recovery before the Tribunal. It also filed the order of the Commissioner of Income-tax (Appeals for the assessment year 1974-745 dated May 12, 1982, as abovementioned, in which the Commissioner of Income-tax (Appeals) had allowed the entire claim; the Tribunal also noted the information furnished by the assessed to it that the subsequent recovery in the assessment year 1975-76 was only an amount of Rs. 3,162 and there was no recovery in the assessment years 1977-78 and 1978-79, the Tribunal further observed that there was no question of any steps to be taken against the Railways for reimbursement of the amounts as these were due from the Railways. After dealing with the amounts pertaining to the Railways, which were only Rs. 31,139, it held that the assessed is entitled to a deduction of the entire amount of Rs. 1,25,271. Consequently, the Tribunal held that the debts had become bad in the year under appeal itself. Though it noticed that some of the amount pertained to advances to the employees, which were not really bad debts, it felt that these could be allowed on the ordinary principles of commercial accountancy as losses incidental to business.
10. Learned counsel for the Revenue submits that most of this material was placed before the Tribunal for the first time.
11. It would appear to us that, in the facts and circumstances of the case, as above indicated, a question of law does arise as to whether the details furnished to the Tribunal with regard to. Inter alia, recoveries in the assessment years 1975-77, 1977-78 and 1978-79 was in the nature of fresh evidenced on which the Tribunal should have relied in coming to its conclusion. We, thereforee, reaffirm the question as follows :
'Whether, in the facts and circumstances the case, the Income-tax Appellate Tribunal was correct in law in holding that the bad debts of Rs. 1,25,271 could be written off in the year under consideration on the basis of material and details furnished to the Tribunal ?'
12. Consequently, we direct the Tribunal to draw up a statement of case and refer question No. 1 and question No. 2, as reformed, for the opinion of this court.
13. However, in the circumstance of the case, we make no order as to costs.