Satish Chandra, C.J.
1. The assessee, a registered firm, carried on the business of purchase and sale of cotton. It was also supplying cotton to M/s. Seksaria Cotton Mills Ltd., Bombay. On 7th April, 1967, it advanced a sum of rupees three lakhs to M/s. Seksaria Cotton Mills Ltd. at 12% per annum interest. For the assessment year 1969-70 (the relevant accounting period ending on 30th September, 1968), the assessee claimed a deduction of Rs. 1,50,000 on the ground that the debt given to M/s. Seksaria Cotton Mills had become irrecoverable. For the next assessment year 1970-71, it claimed a sum of Rs. 1,50,000 again on the same ground. These deductions were disallowed by the ITO. On appeal, the AAC found :
'It was contended before me that the financial position of M/s. Seksaria Cotton Mills Ltd. was found to be bad and a notice of the meeting of unsecured creditors of the said company was received on 10th June, 1968. It was contended that no portion of the debt was in the process of realisa-tion because even till date not a single paise has been received from the company or its liquidators. The balance-sheet of the company as on 12th March, 1969, showed that secured creditors alone amounted to Rs. 1,55,98,418 when the assets of the company excluding fictitious assets came only to Rs. 56,07,687. Even then by way of abundant precaution only 50% of the debt was written off as bad during the relevant previous year....
On the facts stated above, I hold that the assessee had money-lending business and I further hold that the debt had become bad during the relevant previous years. Consequently, I come to a finding that the assessee was entitled to deduction of Rs. 1,50,000 being the amount of partial writeoff for bad debt.'
2. On the same reasoning the deduction of Rs. 1,50,000 for the subsequent assessment year was also allowed.
3. The ITO went up in appeal to the Tribunal. The Tribunal posed three questions. The first question was whether the loss was capital loss. The answer given by the Tribunal was in the negative. The second question was on money-lending business. The Tribunal's answer was in the affirmative. The third question was whether the loan became irrecoverable or unrealisable during the assessment years 1969-70 and 1970-71. On this question, the Tribunal noticed the arguments as raised on behalf of the assessee including the facts mentioned by the AAC, but it devoted its attention exclusively to a proposed scheme of the creditors of M/s. Seksaria Cotton Mills Ltd. After discussing the scheme in detail the Tribunal came to the conclusion that there was a clear possibility of realization of debt and that there was still a ray of hope that the debt may be realised. On the issue, it held that it cannot be said that the debt had become irrecoverable and so bad. It consequently allowed the appeal.
4. At the instance of the assessee, the Tribunal referred the following question of law for our opinion:
'Whether, on the facts and in the circumstances of the case, the assessee was entitled to deduction of Rs. 1,50,000 under Section 36(1)(vii) of the Income-tax Act, 1961, for each of the assessment years 1969-70 and 1970-71?'
5. Mr. Raja Ram Agarwal, appearing for the assessee, emphasised that the Tribunal has no jurisdiction to record a finding of fact after completely ignoring the facts on which the AAC has given his findings. It is no doubt true that the Tribunal has not discussed the facts mentioned by the AAC, namely, the state of affairs of the company as evidenced by the balance-sheet of the company as on 12th March, 1969, as also the fact that nothing had been recovered even from the liquidators 9f the company. In the letter dated 22nd December, 1971, sent by the assessee to the ITO, it has been mentioned that the scheme was ultimately not adopted, as there was little chance of making any recovery under it. This letter was annexed to the statement of the case, but the Tribunal did not advert to it. If the scheme had not been adopted, as is apparent from the material on the record, it could not be a material relevant for considering that the debt was recoverable. The scheme never having been approved and adopted was a valueless document. But the Tribunal, without giving a finding that the scheme was in operation, has relied upon its contents in order to come to the conclusion that there was a ray of hope of recovery.
6. The question as referred to us assumed that the facts as mentioned bythe Tribunal on the basis of which it came to the aforesaid conclusion arenot in controversy. In fact they are. In the circumstances, we are unableto give a definite answer to the question referred to us.
7. In a similar situation the Supreme Court in CIT v. Greaves Cotton and Co. Ltd. : 68ITR200(SC) directed the Tribunal to rehear the matter. This was followed by the Madras High Court in B. Muniappa Gounder v. CIT : 102ITR787(Mad) . In our opinion, the interests of justice in the present case requires that we should follow the same course.
8. We, therefore, return the reference unanswered with a direction thatthe Tribunal will rehear the appeal and decide it in the light of theabove observations and in accordance with law. We make no order as tocosts.