1982 (8) TMI 98 - AT - Income Tax

Tribunal directs fresh assessment, considers intention to continue business, reevaluates bad debts claim

The Tribunal allowed the assessee's appeal, emphasizing the intention to continue business activities and directing a fresh assessment of the claims for ... Bad Debt, Interest Income Issues:1. Whether the assessee was carrying on business during the relevant accounting year to claim benefits of bad debts, depreciation, and set off of unabsorbed depreciation.Detailed Analysis:The main issue in this appeal was whether the assessee was conducting business during the relevant accounting year to avail benefits such as bad debts, depreciation, and set off of unabsorbed depreciation. The assessee was initially engaged in the business of generating and supplying electricity, which was later acquired by the State Government. During the relevant year, the assessee received interest on the recoverable suspense from the State Electricity Board, which had taken over all units from the assessee. The dispute arose when the assessee treated this interest income differently in the original and revised returns. The Income Tax Officer (ITO) contended that the power supply business had been entirely taken over by the State Electricity Board, making any receipts on interest or other sources not part of the business income. Consequently, the ITO disallowed various claims of the assessee, including depreciation, bad debts, and set off of unabsorbed depreciation, citing reasons such as non-bad debts during the accounting period and lack of business activity.The assessee appealed to the Commissioner (Appeals), who upheld the disallowances, stating that apart from interest recovery, the assessee had no other business activities. The assessee then appealed to the Appellate Tribunal, arguing that it was not necessary to continue the same business originally started to claim benefits like bad debts and depreciation. Citing legal precedents, the assessee contended that common management and control sufficed for carrying forward unabsorbed losses. The Tribunal heard arguments from both parties, with the revenue relying on a Supreme Court judgment regarding a similar case where the business was acquired by the Government, leading to deductions being disallowed due to lack of ongoing business activities.The Tribunal considered all facts and circumstances, particularly focusing on whether money-lending could be considered part of the assessee's business based on the alteration in the company's memorandum and articles of association. The Tribunal noted that while money-lending might not strictly be the assessee's primary business, the intention to carry on some business activities was evident. Furthermore, the Tribunal directed a reevaluation of the claim for bad debts, emphasizing that each debt should be examined on its merits rather than summarily disallowed. The Tribunal also addressed an argument related to the inclusion of interest from previous years in the current year's income, highlighting a statutory provision that warranted a correction in the assessment.In conclusion, the Tribunal allowed the assessee's appeal, emphasizing the intention to continue business activities and directing a fresh assessment of the claims for bad debts and interest income from previous years.