Commissioner of Income Tax vs Sree Ganesh Stores

R. Jayasimha Babu J.

The appeal is by the Revenue. It is aggrieved by the Tribunal''s order which allowed as a trading loss a sum of Rs. 71,880. The respondent-

assessee carries on trade in paper.

That amount had been claimed by the assessee as bad debt. That sum, according to the assessee, was part of the sum that was due from

Ananda Traders to whom the assessee had made supplies and from whom the assessee had taken possession of stock of paper valued at Rs.

21,43,724.45. The papers so taken over, according to the assessee, included paper of the value of Rs. 71,880 which had been supplied to that

debtor by a third party Dena Paper.

Subsequently, on Dena Paper demanding the payment of that sum, the assessee made the payment to Dena Paper, which also happened to be a

debtor of Ananda Traders.

The assessee''s case is that the consequence of the payment made by it to Dena Paper was to increase in that amount the debt owed to it by

Ananda Traders which debt in excess of the value of the paper seized less the payment made to Dena Paper, was irrecoverable and thus

constituted a bad debt. That claim was rejected by the Assessing Officer and the Commissioner.

The Tribunal, on further appeal, however, was persuaded to hold that this amount was allowable as a trading loss if not as bad debt. The

Tribunal reasoned that it had, as the final court of fact, a duty to determine the true character of the expenditure and allow the appropriate benefit

to the assessee. For so holding it placed reliance on a decision of this court in the case of Commissioner of Income Tax Vs. Inden Biselers, .

The Revenue did not at any point of time dispute the fact that payment had in fact been made by the assessee to Dena Paper and that the stock

that Dena Paper had supplied to the assessee''s debtors had in fact been taken over by the assessee. We cannot uphold the view of the Tribunal

that the payment made by the assessee had resulted in a trading loss, as the assessee had with it the goods for which payment was made. If the

assessee chose to pay for the stock which it had taken physical control of, it cannot be said to be a payment which was unconnected with its

business and was not an expenditure unconnected with its business activities. The assessee would be entitled to a deduction of this sum in its

trading account even as it was required to treat the sale value of the goods for which it had made payment, as its income. The appeal is dismissed.