9911796707
TMI Blog1970 (1) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... the same name. This new Karachi firm will be referred to as " the Karachi firm ". As from 1st April, 1948, the three remaining partners took over the Bombay business and continued it in the same old name in partnership with two new partners. This firm will be referred to as " the assessee-firm ". After these two new firms were formed there were numerous transactions between them. The Income-tax Tribunal has found that in the accounting year 1948-49 ending on 31st March, 1949, the assessment year being 1949-50, an amount of Rs. 3,94,823 was debited to the account of the Karachi firm and a corresponding credit was given to certain parties who were creditors of the Karachi firm for an equivalent amount and that the amount in fact represented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd credited in the account of the said creditors was allowed as a deduction. In the accounting year 1950-51, the assessment year being 1951-52, the assessee-firm wrote off as a bad debt its outstanding claim against the Karachi firm and simultaneously debited a like amount to the capital account of its partners maintained by it in its books of account. The assessee-firm claimed the bad debt so written off as a revenue loss. In its books of accounts the assessee-firm had, in this year also, credited to the said creditors interest on the amounts due to them by the assessee-firm and claimed it as a deduction from its taxable income. The Income-tax Officer disallowed the claim for the bad debt so written off as a revenue loss and completed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years 1951-52 and 1952-53 were concerned, only such income which had escaped assessment for which the department was competent to take recourse to the provisions of section 34(1)(iii) could be brought to tax in the reassessment proceedings, but, that as the allowance of the interest paid to the said creditors during each of these two years was not the ground for reopening the assessment for each of the two years, it was not competent to disallow the same in such reassessment proceedings and allowed the appeal to that extent. So far as the said six assessment years were concerned, the Tribunal rejected the claim of the assessee-firm for deduction of interest paid to the said creditors and dismissed its appeal in so far as it relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the respondent, also advanced an argument on the same basis and contended that in giving credit to the Karachi creditors " no money came into the till of the assessee-firm " and that, therefore, this credit was not given for the purposes of the business of the assessee-firm. What the Tribunal has found on this point and this contention of Mr. Joshi, in our opinion, fail to appreciate the correct position.These entries effected in the accounting year 1948-49 have been referred to by the Tribunal as "transfer entries" and are what are commonly known as " havala entries". When creating these credits in favour of the said creditors, the assessee-firm obtained an asset of an exactly equivalent amount in favour of the assessee-firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have advanced the said amoant to the assessee-firm. Such is exactly the effect of the debit to the partners' capital account and continuing the original credit in favour of the said creditors, subject to such payments one way or the other as may have been made in the interval after writing off the said debt due by the Karachi firm as a bad debt. The effect of making these entries was that the consideration to support the credits in favour of the said creditors which was originally the corresponding debit to the Karachi firm was, on its being written off as a bad debt, substituted by a corresponding debit to the capital account of the partners and the original transaction of creating the credits in favour of the said creditors continued, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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