COMMISSIONER OF INCOME-TAX, CENTRAL ZONE `C', KARACHI vs Messrs

1. SALEEM AKHTAR, J.---The respondent is a non-resident banking company. For the assessment year 1976-77 it claimed Rs.35,25,785 as bad debts. The Assessing Officer disallowed Rs.31,09,478 on the ground that the suits were filed for sum aggregating Rs.13,85,652 which were pending and, therefore, there was still hope for recovery. For a sum of Rs.17,23,826 the claim was rejected on the ground that no legal action was taken for recovery of that amount. In appeal the order of the Income Tax Officer was confirmed. The respondent then filed appeal before the Tribunal which allowed with the following observations:-- "The A.R. For the Appellant (contended) that the consistent practice is that a provision is made every year and the likely bad debts are taken to this account. Subsequently if any recoveries are made, those amounts are ploughed back and offered for taxation. It was contended that this system was in consequence with the practice normally followed by banks. The A.R. Drew our attention to this Tribunal's consolidated decision dated 8-8-1978 on I.TAs. Nos.636 to 638(KB) of 1977-78 as also I.TA. No.36 of 1969-70, dated 19-12-1975 and further to Karachi High Court decision In re: National Bank of Pakistan 1976 PTD 237. In all these decisions similar method of accounting for writing off the bad debt, as by the appellant, was approved.

2. In the face of the above authorities and in view of the elaborate system of accounting maintained, as explained by us there seems no possibility of any subsequent recovery, out of amount of bad debts already written off escaping charge of tax in succeeding years. We therefore, VACATE the order by the learned AA.C. And DIRECT the assessing officer to ADMIT the claim."

3. The applicant then filed an application under section 136(1) of the Income Tax Ordinance for referring the following question:-- "Whether on the facts and in the circumstances of this case the Income Tax Appellate Tribunal was justified in holding that the claim of the assessee on account of alleged bad debts or the provisions for bad and doubtful debts curtailed by the Income Tax Officer, to be recoverable was admissible within the meaning of section 10(2)(xi) of the repealed Income Tax Act, 1922."

4. This application was dismissed by the Tribunal. The applicant has filed this application under section 136(2) of the Income Tax Ordinance seeking permission to refer the question to the High Court.

5. From the facts stated in the order of the Tribunal it seems that the respondent was claiming allowances in respect of bad debt to the extent of Rs.35,25,785 which was partly allowed by the Income Tax Officer. The controversy was whether the remaining amount is also bad debt to enable the respondent to claim allowance under section 10(2)(xi). The Tribunal has given a finding that the amount claimed by the respondent was bad debt. This is a finding of fact and has not been challenged by the applicant. On this finding, therefore, the respondent would be entitled to claim allowance of the entire bad debt admitted by the Tribunal. No question of law, therefore, arises and the application is dismissed.