The AO disallowed the bad debts written off by the assessee on the ground that it was carrying on only lottery business. This was upheld by the Tribunal. On appeal, the Court held that  a cumulative consideration of all the documents made it clear that the assessee was in the business of not only lottery agency, but also financing. Therefore, the business of the assessee-firm was distribution of lottery tickets and financing. The advance was not out of borrowed funds, but out of surplus income of the assessee-firm. Therefore, the case of the assessee would squarely fall within the ambit of S.  36(1)(vii) . The assessee had written off the bad debt as irrecoverable in its accounts thereby fulfilling the statutory requirement. The assessee was entitled to deduction of the bad debt.

(AY.2001-02)