1980 (9) TMI 115 - AT - Income Tax

Summary

Issues:
1. Application under s. 256 (1) of the IT Act, 1961 for drawing up a statement of case and referring a question of law.
2. Dispute regarding deduction of bad debts in the assessment for the asst. yr. 1975-76.
3. Interpretation of whether bad debts can be claimed as deduction as a capital loss.
4. Contention on whether successor firm can claim deduction for bad debts of predecessor firm.
5. Consideration of legal precedents in support of allowing deduction for bad debts.

Analysis:
The judgment involves an application made under s. 256 (1) of the IT Act, 1961, by the CIT requesting the Tribunal to draw up a statement of case and refer a question of law arising from an order dated 8th May, 1980. The Tribunal declined to draw up a statement as it found no referable question of law in the order. The case pertains to a firm that was dissolved, and its business assets were taken over by a new firm formed by some of the partners. The dispute arose when the new firm claimed deductions for bad debts in its assessment for the year 1975-76, which were rejected by the ITO. The AAC upheld the decision, considering the bad debts as capital loss due to the purchase price of the business being lower than its actual value.

In the second appeal before the Tribunal, the assessee argued that the debts written off should be allowed as deductions since they became bad and irrecoverable after the business was taken over. The Tribunal, relying on various legal precedents, agreed with the assessee's contention and allowed the appeal, stating that bad debts of the predecessor firm, if they become bad after the successor takes over, can be claimed as a deduction by the successor firm. The Commissioner contended that a question of law should be referred to the High Court based on the Tribunal's finding. However, the Tribunal found no contrary decision and considered the issue settled in favor of the assessee based on the authorities cited. Therefore, the application was dismissed, and no referable question of law was found to arise from the Tribunal's decision.