Depreciation after business restructuring and prior-period interest taxation were restricted, while bad debts required fresh merits review.

An assessee need not be carrying on its original electricity business to sustain depreciation and unabsorbed depreciation claims if the original activity has not been wholly closed and a real intention to carry on business remains; on the stated facts, the business was treated as dormant rather than extinguished, so the depreciation-related claims were allowed. A bad-debt claim cannot be rejected summarily and must be examined debt-wise on the relevant material, so the matter was remitted for fresh consideration. Interest referable to earlier years did not become current-year income merely because it was received or credited later under the mercantile system, so its inclusion in the current year was disallowed.

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Issues: (i) whether the assessee, after transfer of its electricity undertaking, was still carrying on business so as to claim depreciation and carry forward of unabsorbed depreciation; (ii) whether the claim for bad debts required fresh examination on the merits; (iii) whether interest relatable to earlier years could be included in the income of the current year.

Issue (i): whether the assessee, after transfer of its electricity undertaking, was still carrying on business so as to claim depreciation and carry forward of unabsorbed depreciation.

Analysis: The assessee had ceased the original electricity supply business, but its memorandum had been altered to include money-lending and other objects, a money-lending licence had been obtained, and some lending activity had actually taken place. The revenue had also accepted the accounts in a manner inconsistent with a complete cessation of business. On those facts, the business could not be treated as wholly closed; at most it was dormant, with an intention to carry on some business remaining alive.

Conclusion: The claim for depreciation and carry forward of unabsorbed depreciation was not to be denied on the ground that no business was carried on at all, and this issue was in favour of the assessee.

Issue (ii): whether the claim for bad debts required fresh examination on the merits.

Analysis: The claim had been rejected summarily without examining each debt separately. The question whether the debts had in fact become bad could not be concluded merely because recovery steps had not been fully taken. Individual debts had to be considered on their own facts and on the material relevant to bad-debt allowance.

Conclusion: The issue was remitted for fresh consideration of the bad-debt claim on merits, in favour of the assessee to that limited extent.

Issue (iii): whether interest relatable to earlier years could be included in the income of the current year.

Analysis: Under the statutory scheme governing payment of interest on delayed purchase price for an electricity undertaking, and in the light of the mercantile system of accounting, interest attributable to the earlier period did not accrue as current-year income merely because it was received or credited in the current year.

Conclusion: The inclusion of the earlier years' interest in the income of the present year was not justified, and this issue was in favour of the assessee.

Final Conclusion: The appeal succeeded substantially for the assessee, with the allowance of depreciation-related claims and deletion of wrongly included prior-period interest, while the bad-debt claim was sent back for fresh examination.

Ratio Decidendi: A business need not be the original line of activity to sustain depreciation-related claims if the assessee has not completely ceased business and retains a real intention and capacity to carry on business; prior-period income cannot be taxed in the current year merely because it is received then under a mercantile system.

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