COMMISSIONER OF INCOME TAX A P Vs. T VEERABHADRA RAO K KOTESWARA RAO AND CO

JUDGEMENT

(1.) This appeal by special leave is directed against the judgment of the High Court of Andhra Pradesh disposing of a reference made under sub-sec. (1) of S. 256 of the Income-tax Act, 1961 for its opinion on the following question of law

(2.) In assessment proceedings for the assessment year 1965-66, for which the previous year was the year ending March 31, 1965, the assessee claimed a deduction of the aforesaid sum of Rs. 15, 100/- written off as a bad debt. The Income-tax Officer disallowed the claim on the ground that the debt was due originally to the predecessor firm, that there was no reason to take over the loan by the assessee firm and further that it was not proved that the debtor was so financially embarrassed that he was unable to pay the debt, On appeal, the Appellate Assistant Commissioner of Income-tax held that the business transferred from the predecessor firm to the assessee continued. uninterrupted, and the change of ownership was no bar to the bad debt being allowed. He also noted that the assessee had paid income-tax on the interest of Rs. 11, 349/- in an earlier assessment year, and held that the assessee's bona fides stood established. Holding that there was justifications for writing off the bad debt in the measure claimed by the assessee, the Appellate Assistant Commissioner allowed the appeal.

(3.) It may be mentioned that the assessee had also claimed a deduction of a sum of Rs. 6,880/- before the Income-tax Officer on the ground that the assessee had incurred legal expenses in that amount in connection. with an appeal filed in the Supreme Court for the purpose of recovering a sum due from the Central Government. The transaction related to the predecessor firm and the suit instituted by it had been continued by the assessee on taking over the assets and liabilities of the predecessor firm. The Income-tax Officer disallowed this claim also, but in appeal the Appellate Assistant Commissioner upheld the claim.