TaxTMI 
TaxTMI 
2009 (3) TMI 613
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....s. The respondent-assessee was one of the companies, which had taken over the business of M/s. Lal Woollen and Silk Mills. The respondent-assessee was incorporated on February 16, 1972. It commenced its business on July 1, 1972. 4. It is not a matter of dispute that a sum of Rs. 1,30,242 was recoverable by M/s. Lal Woollen and Silk Mills. The aforesaid asset of M/s. Lal Woollen and Silk Mills is claimed to have fallen to the share of the respondent-assessee. This emerges from certain observations made in the order dated January 30, 1982, passed by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar. In this behalf, reference may be made to the findings recorded in paragraph 13 thereof. For the assessment year 1976-77, after having partly acquired the assets and liabilities of M/s. Lal Woollen and Silk Mills, the respondent-assessee declared the debts recoverable at the hands of M/s. Lal Woollen and Silk Mills amounting to Rs. 1,30,242 as irrecoverable. The same were, therefore, written off as a bad debt during the aforesaid assessment year 1976-77 (i.e., previous year 1975-76). The Assessing Officer accepted the claim of the respondent-assessee and allowed the ded....
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....en contracted during the existence of the erstwhile firm which was predecessor in business to the assessee-company. The question for consideration is only whether in view of the language of section 36(2) a debt, which is standing as the debt of the business taken over by the assessee and paid for at the time of the take over of the business as a whole becomes bad in the relevant year can it be allowed as a deduction or it has to be disallowed on the ground that it had not been taken into account in the computation of this particular assessee though it might have been taken into account in the computation of income of this particular business. The whole matter turns on the interpretation of the provisions of section 36(2) and it cannot be denied that the interpretation placed by the Commissioner of Income-tax (Appeals) is possible. However, the question of interpretation of the provisions of section 36(2) had come up for consideration before the Andhra Pradesh High Court in the case of T.Veerabhadra Rao [1976] 102 ITR 604 (AP) and after considering the background of the provisions and its language the court had held that the deduction available under section 36(2)(i)(b) was not only....
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....written off as irrecoverable in the accounts of the assessee for the previous year : Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof, exceeds the credit balance in the provision for bad and doubtful debts account made under that clause : Explanation.-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee ; . . . (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee." 10. Undoubtedly, the deduc....
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....er : "While discussing the subject regarding write off of bad debts to the tune of Rs. 89,332, it was found that these debts pertained to the old firm whose business was taken over by the limited company styled Lal Woollen and Silk Mills (P) Ltd. during the accounting period relevant to the assessment year 1974-75. It appears that the Assessing Officer the then Income-tax Officer, District I(i) allowed a deduction of bad debts totalling Rs. 2,35,226 relating to a Government Department i.e., the Director-General Supplies and Disposal and rejected your claim with regard to the further sum of Rs. 89,332. In my opinion the deduction of Rs. 2,35,226 was erroneously allowed by the Assessing Officer as a bad debt because one of the essential conditions for allowing such a deduction is that the amount should have been taken into account in computing the income of the assessee for that previous year or an earlier previous year or should represent money lent in the ordinary course of business of banking or money-lending carried on by the assessee. In the present case, the sum of Rs. 2,35,226 was not taken into account in computing the income of the assessee namely the limited compa....
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....yable on the debt by the said assessee also lead to the clear inference that the assessee was reflecting the debt as its income. 15. In so far as the present case is concerned, there is no material whatsoever on the record of this case to depict that the respondent-assessee reflected the debt under reference as its income. It is also not possible forus to accept that the debt income allegedly shown by M/s. Lal Woollen and Silk Mills should be treated as the income of the respondent-assessee. The respondent-assessee is a private limited company and as such, an entity separate and distinct from the erstwhile M/s. Lal Woollen and Silk Mills. It is just not acceptable in law to treat the income of M/s. Lal Woollen and Silk Mills as the income of the respondent assessee unless it is expressly shown to be so. Even otherwise the respondent-assessee did not acquire the entire assets and liabilities of M/s. Lal Woollen and Silk Mills. The assets and liabilities of M/s. Lal Woollen and Silk Mills were admittedly taken over by two companies. It is not even clear whether or not the debt under reference, in respect whereof the respondent assessee is claiming a deduction, came to the s....