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TMI Blog2009 (3) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... ction on the basis of its having written off the debt under reference - Decided against the assessee - 105 of 1982 - - - Dated:- 18-3-2009 - KHEHAR J. S., UMA NATH SINGH, JJ. JUDGMENT J. S. Khehar J.- Through this reference, the following substantial question of law has been posed for our determination : "Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that the claim of the bad debt to the extent of Rs. 1,30,242 was to be allowed as a deduction in the assessment of the assessee ?" 2. So as to determine the question posed, it would be necessary to delineate the factual background giving rise to the issue. 3. Up to the assessment year 1973-74, certain business was carried out by M/s. Lal Woollen and Silk Mills as a firm. M/s. Lal Woollen and Silk Mills had several branches including M/s. Lal Worsted Spinning Mills, M/s. Lal Oil and Chemical Mills and M/s. H. M. Mehra and Co. The business of M/s. Lal Woollen and Silk Mills was taken over by two companies. The respondent-assessee was one of the companies, which had taken over the business of M/s. Lal Woollen and Silk Mills. The respondent-assessee was incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to our notice during the course of arguments, the same are being extracted hereunder : "12. The learned counsel for the assessee has submitted that the whole question has been considered by the Andhra Pradesh High Court in the case of CIT v. T. Veerabhadra Rao, K. Koteswara Rao and Co. [1976] 102 ITR 604 (AP) and by the Allahabad High Court in the case of T. N. Shah P. Ltd. v. Addl. CIT [1979] 120 ITR 354 (All) and there was no decision of any High Court regarding section 36 of the Income-tax Act, which might have taken a view different from the above. It was, therefore, contended that the learned Commissioner of Income-tax (Appeals) has erred in differing from the above High Court decisions and enhancing the assessee's income. 13. We have considered the facts of the case and the arguments advanced from both sides. There is no difference on the facts and it is an admitted position that the enhancement made by the Commissioner of Income-tax (Appeals) relates to those debts, which had been contracted during the existence of the erstwhile firm which was predecessor in business to the assessee-company. The question for consideration is only whether in view of the language o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-assessee that a seal of approval has been affixed by the Supreme Court on the determination rendered by the Andhra Pradesh High Court. 8. We have given our thoughtful consideration to the question posed. 9. According to learned counsel for the applicant-Revenue, the answer to the aforesaid question has to evolve from section 36 of the Income-tax Act, 1961, which envisages the deduction under reference. In this behalf, our pointed attention was invited to section 36(1)(vii) as well as section 36(2)(i) of the Income-tax Act. 1961 (hereinafter referred to as the 1961 Act). The aforesaid two provisions relied upon are being extracted hereunder for facility of reference : "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- . . . (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year : Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written off the debt. 11. It is the vehement contention of learned counsel for the applicant-Revenue that the debt of Rs. 1,30,242 allegedly recoverable by M/s. Lal Woollen and Silk Mills, which allegedly fell to the share of the respondent-assessee, had never been depicted as the income of the respondent-assessee in the accounts of the respondent-assessee, either in the previous year during which it was sought to be written off, or in any other previous year prior thereto. It is, therefore, the vehement contention of learned counsel for the applicant-Revenue that one of the essential conditions of deduction having not been met by the respondent-assessee, the deduction claimed by the respondent-assessee cannot be granted. In so far as the aforesaid factual position is concerned, the same emerges from the notice issued to the respondent-assessee under section 251(2) of the 1961 Act for enhancement, which reads as under : "While discussing the subject regarding write off of bad debts to the tune of Rs. 89,332, it was found that these debts pertained to the old firm whose business was taken over by the limited company styled Lal Woollen and Silk Mills (P) Ltd. during the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice which could lead to the conclusion that the respondent-assessee had shown the debt under reference as its income. In fact no material has been brought to our notice on the basis whereof even such an inference could have been made. In the judgment rendered by the Andhra Pradesh High Court (referred to above), the Income-tax Appellate Tribunal noticed that "the court had further held that since the assessee had taken over the assets and liabilities of the predecessor firm and since the successor firm continued the business and was even assessed to tax on the income accrued on the debt which was taken over the assessee could write off the debts and claim deduction thereof." It is, therefore, apparent that in the case relied upon (rendered by the Andhra Pradesh High Court) the assessee under reference had expressly shown the debt due as its income. The payment of tax on the interest payable on the debt by the said assessee also lead to the clear inference that the assessee was reflecting the debt as its income. 15. In so far as the present case is concerned, there is no material whatsoever on the record of this case to depict that the respondent-assessee reflected the debt und ..... 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