- (1.) THE Tribunal has referred the following question of law arising out of its order, dt. 29th April, 1982 in respect of asst. year 1975 -76 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the CIT(A) was right in allowing the bad debts of Rs. 42,754 and Rs. 17,944 -
(2.) THE brief facts of the case are that bad debts of Rs. 42,755 and 17,944 were given by the assessee which were allowed by the ITO on the ground that the assessee -company is the successor to firm M/s Amber Corporation and the said bad debts were related to the firm M/s Amber Corporation. Relying on the decision in T.N. Shah (P) Ltd. vs. Addl. CIT (1979) 8 CTR (All) 207 : (1979) 120 ITR 354 (All), the Tribunal allowed the deduction. The ITO found that the debts of a purchaser in business cannot be allowed as a deduction in the hands of the successor in business and the contention of the assessee that due to change of ownership of the business the identification of the business is not broken or interrupted and the successor is entitled to write off the trading debts in his own accounts when they became irrecoverable, even though the debts may be due from its customers in respect of the dealings of a period prior to the change of the ownership was rejected.
(3.) THE decisions relied by the assessee in Expanded Metal Depot Pvt. Ltd. vs. CIT (1971) 80 ITR 483 (Bom), CIT vs. Bombay Hing Supply Co. (1966) 61 ITR 672 (Bom) and CIT vs. T. Veerabhadra K. Koteeswara Rao & Co. (1976) 102 ITR 604 (AP), were held not applicable as the decisions were said to be under the provisions of the IT Act, 1922 and the present Act did not contain any provision corresponding to S. 36(2)(i)(a) of the IT Act, 1961, where deduction for bad debts cannot be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year. In appeal before the Tribunal the decision of Allahabad High Court in the case of T.N. Shah (P) Ltd. vs. Addl. CIT (supra) was relied wherein it was held as under : "There is nothing in S. 36(2) of the Act to indicate that "assessee"refers to the original creditor and does not include a transferee or assignee of the debt. The condition which has been expressly incorporated in S. 36 and which did not find a place in S. 10(2)(xi) of the Act of 1922, is that the amount of the debt or part thereof should have been taken into account in computing the income of the assessee in a previous year. The emphasis is not on the assessee being the original creditor but the taking into account of the debt in computing the income of the same business. If, in a given case, the income of a business is computed by taking into account a certain debt, it does not appear reasonable that, in the absence of any statutory prohibition, allowance on account of the debt having become bad should be denied only because the assessee's identity has changed though the identity of the business continues." The provisions of S. 36(2)(i)(a) are as under : "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". ;