2023 (10) TMI 1283 - HC - Income Tax

Deduction qua bad debts acquired from predecessor-in-interest on acquisition of its commercial vehicle division in a scheme of demerger - whether the successor-in-interest i.e., the respondent/assessee, could have written off the debts which were already turned bad? - HELD THAT - According to us, this issue is no longer res integra, given the factual matrix arising in the instant matter and in view of the judgment T. Veerabhadra Rao 1985 (7) TMI 2 - SUPREME COURT . This view has also found resonance with a judgment rendered in CIT v. Times Business Solution Ltd 2013 (4) TMI 370 - DELHI HIGH COURT . Having regard to the factual position and the legal principles enunciated in the judgments referred to hereinabove, we are of the opinion that no interference is called for with the impugned order. Disallowance concerning bad debts was correctly deleted - no substantial question of law.

Summary

Issues involved:
The appeal concerns Assessment Year (AY) 2010-11. The main issue is the permissibility of deduction for bad debts acquired by the respondent/assessee from its predecessor-in-interest, Eicher Motors Ltd., on acquisition of its commercial vehicle division in a scheme of demerger, under Sections 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961.

Detailed Judgment:

Issue 1: Permissibility of Deduction for Bad Debts

The appellant/revenue sought to challenge the order passed by the Income Tax Appellate Tribunal regarding the deduction of bad debts acquired by the respondent/assessee from its predecessor-in-interest. The appellant argued that the deduction was not permissible under the relevant provisions of the Income Tax Act, 1961. The senior standing counsel for the appellant acknowledged that the debts in question had become bad and that the predecessor-in-interest had previously offered them for tax imposition.

Issue 2: Consideration of Successor-in-Interest's Ability to Write Off Debts

The key issue before the statutory authorities was whether the successor-in-interest, the respondent/assessee, had the right to write off debts that had already turned bad. The Commissioner of Income Tax ruled in favor of the respondent/assessee, a decision that was upheld by the Tribunal. The court referenced previous judgments, including one by the Supreme Court and another by a coordinate bench of the court, to support the view that no interference was necessary with the impugned order. Consequently, the disallowance of bad debts amounting to Rs. 5,96,20,438/- was correctly deleted.

Conclusion:

In conclusion, the court found that no substantial question of law arose for consideration. The appeal was closed, and the parties were directed to act based on the digitally signed copy of the judgment.