1. The question raised on this reference relates to a debt written off by the assessee on the 12th of November, 1947, and the debt came to be written off under the following circumstances. The assessee advanced Rs. 10,000 to one B. A. Joshi, a film producer, on the 31st of December, 1945. In respect of this loan one G. N. Joshi was a guarantor. Thereafter the assessee advanced a further sum of Rs. 70,000 by driblets, but these loans were not guaranteed and they were advanced on demand promissory notes. The last of these advances was made on the 6th of June, 1946; and, as already pointed out, the debt was written off on the 12th of November, 1947, which is the last date of the year of account of the assessee relevant to the assessment year 1948-49. The Department took the view that the debt had not become irrecoverable in Samvat year 2003, which is the year of account and the Tribunal agreed with the view of the Department.
2. The question which we have to consider is whether there was evidence on the record for the finding of the Tribunal that the loan had not become irrecoverable in Samvat year 2003; and it cannot be said that there is no evidence to this effect. The most important piece of evidence is this, that Joshi the debtor had produced a film by name Ajka Farhad, which film was ready either in August, 1947, or in case, it was ready a short time before this loan was written off. It is difficult to take the view that, while the debtor had such a valuable asset with him which had not yet been exploited it could be said by the assessee that the loan advanced by him to the debtor had become irrecoverable. It is pointed out by the Appellate Assistant Commissioner that the assessee advanced these large amounts without any security because he expected to be repaid out of the exploitation of this film; and what the assessee does is to write off this loan before the debtor had even had a chance to exploit the film. It may be as has turned out subsequently, that the film was never released; but at the relevant date the assessee could not have knowledge that this film would not be released or that if it was exploited it would be a failure.
3. The other important piece of evidence on which the Income-tax officer relied is that the assessee had made a large profit in speculation in the year of account and he seems to have claimed this Rs. 70,000 as a bad debt in order to reduce his liability to pay tax. As against that, Mr. Pandit has drawn our attention to the fact that a suit was filed against the debtor on the 4th of July, 1947, by a firm of the name of Amichand Bhagaji & Co. and this very firm was one of the petitioners in a petition preferred on the 23rd of March, 1948, to adjudicate Joshi insolvent and in fact Joshi was adjudicated insolvent on the 20th of July, 1948. Now merely because a suit was filed on the 4th of July, 1947, it could not make the assessee feel that there was no hope of recovering this loan from the debtor. The insolvency proceedings did not start till after the debt had been written off and there is nothing to show that the assessee felt or knew that there was any connection between the filing of this suit and the ultimate adjudication of Joshi as insolvent.
4. Mr. Pandit has then asked us to consider the scheme of section 10 (2) (xi) and he says that, if Rs. 70,000 is written off by the assessee, the Income-tax Officer must estimate what part of this Rs. 70,000 is irrecoverable, and inasmuch as the Income-tax Officer to say that no part of the bad debt claimed by the assessee had become irrecoverable in the year of account, or he may say that part of it had become irrecoverable. In this case it is clear from his order that he takes the view that no part of this Rs. 70,000 had become irrecoverable. As the only question before us is whether there is evidence to support the finding of the Tribunal, it is difficult to accede to Mr. Pandit's contention that the finding is without any evidence.
5. There is no doubt that in fact Rs. 70,000 were never recovered by the assessee from his debtor. As we had occasion to point out before, the present income-tax law with regard to bad debts makes the position of the assessee extremely difficult. He may write off a debt in a particular year and May claim it and the claim May be disallowed. In the next year he cannot make that claim because it would be urged against him that he did not write off the debt in that year. Therefore, the assessee always finds himself on the horns of a dilemma and it is the duty of the Department to take a sympathetic view of the matter if in fact the debt was never recovered. Therefore, if the debt was not allowed to the assessee in the year of account, there is no reason why the Department should not consider allowing him this debt in the next year when admittedly the debt became irrecoverable, although the assessee May not have written it off in that year.
6. The result is that we must answer the question submitted to us in the affirmative. Assessee to pay the costs.
7. No order on the motion. No order as to costs of the motion.
8. Question answered in the affirmative.