Successor company can claim bad debts pre-amalgamation under Section 36(1)(vii)

The High Court upheld the Tribunal's decision allowing the assessee, as a successor company, to claim bad debts originally owed by another company before amalgamation. The Court agreed that the debts remained the same after the transfer, permitting the assessee to deduct them under section 36(1)(vii) for taxable profits. The Court dismissed the Revenue's appeal, affirming the Tribunal's ruling that the assessee had the right to write off the bad debts, citing a Supreme Court precedent supporting the transfer of such rights in business transfers.

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Issues:
1. Bad debt claimed by the assessee and allowed by the Tribunal.

Analysis:
The High Court of Gujarat considered an appeal by the Revenue against a Tribunal judgment regarding the bad debts claimed by the assessee company. The main contention was whether the assessee, as a successor company, was entitled to claim bad debts that were initially owed by another company, MITCL, which had not declared them as bad debts before amalgamation. The Tribunal examined the issue and found that the nature of the debt remained the same after amalgamation, allowing the assessee to write off the bad debts and claim them as allowable deductions under section 36(1)(vii) while computing taxable profits. The Tribunal cited the Supreme Court's ruling in a similar case to support the transfer of rights to the new owner in such business transfers. It concluded that the departmental authorities erred in their interpretation and directed the Assessing Officer to allow the bad debts written off by the assessee company.

The High Court concurred with the Tribunal's findings, stating that as a successor company, the assessee was entitled to the benefits of the bad debts incurred by the previous company. The Court noted that there was no error in the Tribunal's decision and that the debts being bad and written off by the assessee were not in dispute. Consequently, the Court dismissed the Tax Appeal, as it found no question of law to be addressed in this case.

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