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Issues Involved
1. Disallowance of Bad Debt 2. Addition of Interest Accrued 3. Relief under Sections 80K and 80M 4. Compliance with Section 144B 5. Maintainability of Writ Petition Detailed Analysis 1. Disallowance of Bad Debt The petitioner, New India Investment Corporation Ltd., advanced money on interest to Bagla & Co. and Central Cotton Mills Ltd. Due to Bagla & Co.'s financial difficulties, an agreement was made to repay the principal without interest. The petitioner wrote off Rs. 32,050.69 as a bad debt in their profit and loss account for 1972. The ITO disallowed this claim, arguing that Bagla & Co. was financially sound enough to repay the principal, thus non-payment of interest was unjustified. 2. Addition of Interest Accrued The petitioner did not provide for Rs. 1,16,100 in interest from Central Cotton Mills Ltd., which had become a sick undertaking. The ITO added this amount as accrued and receivable interest, stating that the petitioner should have accounted for it under the mercantile system of accounting. The petitioner argued that this was due to the Sick Textile Undertaking (Nationalisation) Ordinance, 1974, which prioritized secured loans over unsecured ones like theirs. 3. Relief under Sections 80K and 80M The petitioner contended that the ITO did not allow the appropriate relief under Sections 80K and 80M of the I.T. Act, 1961. The ITO argued that the petitioner failed to furnish the necessary dividend certificates, thus only partial relief was granted to avoid the assessment becoming time-barred. 4. Compliance with Section 144B The petitioner argued that the ITO made variations exceeding Rs. 1 lakh in their returned income without complying with Section 144B, which mandates forwarding a draft order to the assessee for objections. The ITO contended that the total variation did not exceed Rs. 1 lakh, as the petitioner's "nil" return was adjusted to a total income of Rs. 50,230, thus Section 144B was not applicable. 5. Maintainability of Writ Petition The Revenue contended that the writ petition should be dismissed in limine due to the pending appeal. The petitioner argued that the High Court could still exercise jurisdiction under Article 226 of the Constitution, as the assessment was alleged to be ultra vires the I.T. Act and without jurisdiction. The court agreed to hear the petition on merits, citing precedents that allow judicial review even when alternative remedies are available. Conclusion The court held that the expression "the income or loss returned" in Section 144B refers to the total income or loss shown in the return, not the amounts under different heads. Since the variation in the petitioner's total income did not exceed Rs. 1 lakh, Section 144B was not applicable. Consequently, the petitioner's application failed, and the rule was discharged without costs. The court also clarified that it did not adjudicate other contentions in the pending appeal. The operation of the order was stayed for six weeks upon the petitioner's request.
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