Reassessment and bad-debt deduction principles: reopening from the return record was valid, but the write-off failed without proved money-lending business.

Reassessment under section 147 was treated as valid because the return, accounts and notes to accounts already disclosed a claim that prima facie called for scrutiny; processing only under section 143(1) did not make the reopening a mere change of opinion. The bad-debt deduction under section 36(1)(vii) was denied because the assessee did not prove that it was regularly carrying on a money-lending business, and the write-off was treated as an advance or loan of capital character rather than a debt arising in the course of such business. The assessment was sustained on both jurisdiction and merits.

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Issues: (i) Whether reassessment under section 147 of the Income-tax Act, 1961 was valid on the facts of the case; (ii) Whether the amount written off as bad debt was allowable as a deduction under section 36(1)(vii) of the Income-tax Act, 1961.

Issue (i): Whether reassessment under section 147 of the Income-tax Act, 1961 was valid on the facts of the case.

Analysis: The original processing was only under section 143(1), and the return together with the accounts showed that the assessee had claimed a loan write-off as bad debt. On the material available from the return and notes to accounts, the claim prima facie called for scrutiny. In such a case, initiation of reassessment within four years was held to be based on the record itself and not vitiated by an impermissible change of opinion.

Conclusion: The reassessment under section 147 was valid and the assessee failed on this issue.

Issue (ii): Whether the amount written off as bad debt was allowable as a deduction under section 36(1)(vii) of the Income-tax Act, 1961.

Analysis: The assessee did not establish that it was regularly carrying on a money-lending business. The memorandum clauses by themselves were not conclusive, and the accounts did not show any real money-lending activity. The write-off therefore represented an advance or loan of capital character and not a debt arising in the course of a money-lending business.

Conclusion: The deduction for bad debt was not allowable and the disallowance was upheld.

Final Conclusion: The assessment was sustained both on jurisdiction and on merits, and the assessee obtained no relief.

Ratio Decidendi: Where an assessee's return and accounts themselves disclose a claim that prima facie warrants examination, reassessment under section 147 is valid even after processing under section 143(1); a bad-debt deduction is allowable only when the debt arises from an established money-lending business.

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