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Issues:
- Disallowance of claim for bad debts in the assessment year 1935-36. - Application of the principle of res judicata in income-tax proceedings. - Justification for differing conclusions by the Income-tax authorities in consecutive years. Analysis: The judgment pertains to a reference made by the Commissioner of Income-tax under Section 66(3) of the Indian Income-tax Act. The case involved the disallowance of the assessee's claim for bad debts in the assessment year 1935-36, specifically debts due from three individuals. The Income-tax authorities rejected the claim, stating that the debts had long before become bad and should have been claimed earlier. Interestingly, the same claim was made in the previous year, where it was disallowed on the grounds of prematurity rather than the debts being bad. This discrepancy led to a direction from the court to clarify the justification for disallowing the claim in the subsequent year. The judgment delves into the application of the principle of res judicata in income-tax proceedings. While acknowledging that this principle does not strictly apply, it was argued that Income-tax Officers should not differ from a previous decision unless new facts are presented. Reference was made to a Madras Full Bench decision emphasizing that officers can only change assessments if fresh facts warrant a different conclusion. The judgment scrutinized whether the Income-tax authorities in 1935-36 had new facts before them justifying the altered decision regarding the bad debts. The judgment highlighted that the assessee's claims regarding the debts were not vigorously pursued in the year 1935-36. However, a thorough inquiry was conducted by the Commissioner in the presence of the assessee and his advocate. The Commissioner scrutinized the debts individually and concluded that they were old and had become bad long before the claim was made. It was noted that the Commissioner's decision was based on new material presented during the hearing, which was not available to the authorities in the previous assessment. As there were fresh materials and evidence supporting the conclusion that the debts had become bad long before, the court upheld the Income-tax authorities' finding for the year 1935-36. In conclusion, the judgment affirmed that the Income-tax authorities were entitled to reach a different conclusion based on new evidence and material. The finding regarding the bad debts for the assessment year 1935-36 was deemed legally sound, and the question posed by the Commissioner was answered affirmatively. The judgment also allowed the Commissioner to retain a deposited sum without additional costs.
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