HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Associated Banking Corporation of India Ltd. v. Commissioner of Income Tax, Bombay-I
Civil Appeal No. 956 of 1963
[1965] 1 SCR 788 ·
Indian Income Tax Act, 1922: sections 10(1), 10(2)(xi) and 10(2)(xv)
Sources & disclosures includedDownload original judgment / order
3-judge bench · K. Subba Rao, J. · J. C. Shah, J. · S. M. Sikri, J.
Assessment years: 1948-49
01 · Facts of the case
The bank entered liquidation and, for assessment year 1948-49, claimed irrecoverable advances and losses caused by its secretary’s defalcations. No individual write-off entries had been posted. On a supplementary reference, the Tribunal found that at least Rs. 15,00,000 of debts had become irrecoverable in the accounting year, while the defalcations became known to the liquidator only later. The Bombay High Court denied both claims, leading to the bank’s appeal.
02 · Discussion by the Hon’ble Court
The Court read section 10(2)(xi) as empowering the Income Tax Officer to estimate irrecoverable debts, subject to a ceiling where an amount had actually been written off. A missing entry could be evidentially important but was not an automatic jurisdictional bar where its absence was reasonably explained. The embezzlement issue was different: a commercial trading loss did not necessarily arise at the instant of secret misappropriation. Until discovery and until reasonable prospects of restitution had ended, the loss could not be treated as actual and certain in the relevant year.
03 · Judicial decision
The Court partly allowed the appeal. It substituted an answer allowing Rs. 15,00,000 as bad debts under section 10(2)(xi), but answered the defalcation-loss question against the bank because the loss had not crystallised in the accounting year. No order as to costs was made.
Source: Holding and operative order
04 · Outcome / in whose favour
In favour of the assessee only on bad debts. The embezzlement component remained disallowed for the year claimed; this was not a complete merits victory.
Source: Operative result
05 · AKHB REVIEW POINT
AKHB analysis: maintain separate evidence tracks for debt irrecoverability and employee fraud. A bad-debt file should document the debt, business nexus, write-off treatment and statutory conditions; a fraud-loss file should also establish discovery, recovery action, realistic restitution prospects and the year in which commercial loss became certain.
Source & verification
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Statutory scope
The decision interprets the historical bad-debt and business-expenditure provisions of the Indian Income Tax Act, 1922. It does not state the current statutory conditions under the Income-tax Act, 1961.
Later treatment
Source checked 2026-10-10. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
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