UNIVERSAL RADIATORS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) A partnership, under the name and style of M/s. Universal Radiators, was carrying on business in the manufacture and sale of radiators and in the course of such business, supplied radiators to the Gun Carriage Factory at Jabalpur. Owing to the detection of defects in the goods supplied, the Gun Carriage Factory authorities cut a portion of the amounts specified in the bills and the partnership was not apprised of the cuts. The books of the partnership showed that a sum of Rs. 27,393.75 was due from the Gun Carriage factory as on April 1, 1969. the assessee-company took over the business, assets and liabilities of the partnership and this included the sum of Rs. 27,393.75 due from the Gun Carriage Factory. Out of this sum of Rs. 27,393.75, the assessee realised a sum of Rs. 6,025.50 on May 24, 1970. Thereafter, in spite of repeated requests and reminders, the assessee was unable to realise the balance of Rs. 21,368 and reminders, the assessee was unable to realise the balance of Rs. 21,368 as the Gun Carriage Factory maintained that this amount represented cuts in the bills for the defective goods supplied. The assessee wrote off this amount of Rs. 21,368 as bad and irrecoverable and made a claim for allowance. In the original assessment made, this claim of the assessee was accepted and allowed, but, subsequently, the ITO reopened the assessment and negatived the claim of the assessee on the ground that the debt had not been taken into account while computing the income of the assessee for an earlier previous year and the non-realisation of the debt by the assessee after the take over of the assets and liabilities of the partnership has to be treated only as a capital loss and not a trade debt in the hands of the assessee.

(2.) ON appeal by the assessee, the AAC took the view that the reopening of the assessment and the reassessment were quite in order having been made as a consequence of information in the possession of the ITO and not as a result of a mere change of opinion and that the claim of the assessee for bad debt cannot be allowed, as it had not been taken into account while computing the income of the assessee (for an earlier previous year). The appeal of the assessee was, therefore, dismissed.

(3.) ON the other hand, the learned counsel for the Revenue maintained that if the allowance for the bad debt is to be made available in the hands of an assessee different from the one who had incurred it, it would be difficult to work out the provisions of s. 41(4) of the Act especially when it is found that a bad debt had been allowed in an earlier assessment in the hands of the assessee and it had been later recovered by a different or successor-assessee. Reliance, in this connection, was placed by the learned counsel for the Revenue on the decision in CIT v. Kaimal .