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TMI Blog1994 (12) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... -76. A firm by name Messrs. S. M. Syed Mohammed Saheb and Brothers, was carrying on the business of purchase and sale of cloth at Calicut. It had branches at Cannanore and Mangalore. On account of differences of opinion between the partners, the firm was dissolved on January 17, 1973. Business carried on at Calicut was allotted to S. M. Syed Abdulkhader and his five daughters. They constituted a firm and it is the assessee with which we are concerned in these proceedings. During the previous year ending March 31, 1975, it wrote off Rs. 6,743 in the profit and loss account and Rs. 58,283 in the " general reserve " as bad debts. The assessee-firm filed a return for the assessment year 1975 76 claiming a net loss of Rs. 27,970. In doing so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrecoverable in the accounts of the assessee for that previous year. In the instant case, since it is not disputed that the outstandings aggregating to Rs. 65,026 have been written off as irrecoverable in the books of account of the assessee in the relevant previous year, the requirement of sub-clause (b) of section 36(2)(i) has been satisfied. The question to be considered is whether an assessee who succeeds to the business carried on by another person could claim deduction of a business debt which come into existence in the course of the business carried on by such other person in an earlier year, on its becoming irrecoverable after the assessee had taken over the business. In CIT v. Bombay Hing Supply Co., [1966] 61 ITR 672, the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. [1976] 102 ITR 604. The court observed that what was necessary was that the fact that the debt should have been written off as irrecoverable and the fact that the predecessor-firm had written off the debt as irrecoverable was sufficient. The view taken by the Andhra Pradesh High Court in this case has been confirmed by the Supreme Court in CIT v. T. Veerabhadra Rao, K. Koteswara Rao and Co. [1985] 155 ITR 152. According to learned counsel representing the Revenue since Rs. 58,283 was credited to a " general reserve ", the assessee cannot claim deduction even if the said amount has become irrecoverable and consequently a bad debt. The argument is that the amount which become irrecoverable from the category of " general reserve " is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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