TMI Blog1998 (12) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the finding of the Tribunal that the assessee-company all along claimed that these were trade debts : is based on any evidence or perverse ? 3. Whether, on the facts and in the circumstances of case and in view of the entries made in the books of account of the assessee from the assessment years 1967-68 to 1984-85, the finding of the Tribunal that the case is on the Commissioner to establish that they were loans and advances and since the Commissioner did not examine the record beyond 1967-78(?), the Tribunal have to accept the claim of the assessee's counsel that they were trade-debts, is based on any principle of law or perverse ? 4. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the debt in question was a trade debt, is based on any relevant material or perverse ? 5. Whether, on the facts and in the circumstances of the case and in view of the very fact that the paraphernalias of the take over of the debts of the eleven concerns in which the directors of the assessee were interested by another third party was arranged to avoid the provisions of section 295 of the Companies Act, 1956, which prohibits advancing of direct or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um, which is only of the order of Rs. 50,000 and about which there is not much dispute, the rest was a long standing and old debt. The Income-tax Officer's first assessment went totally in favour of the assessee regarding the issue of knocking off. The Commissioner of Income-tax by exercising powers of revision under section 263 of the Income-tax Act, 1961, sought to opine that the assessment was erroneous because the amount in question, representing the bad debt, had never passed through the revenue accounts of the assessee and, therefore, it could not be treated as trade debts. In the revising order the Commissioner set out the facts taken from the assessment order. It is mentioned there that eleven parties had obtained supplies from the assessee some time prior to 1966-67. The names of these eleven purchasers are mentioned, with one mistake in that "Howrah Oil" was mistakenly mentioned as "Howrah Flour". The Income-tax Officer had placed reliance on two letters of the assessee dated February 28, 1985, and June 14, 1985, giving information. The Income-tax Officer accepted the assessee's case that these eleven purchasers gave rise to the debt in the first place. Thus, on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ordinary course of the business of banking or money-lending which is carried on by the assessee, and (b) has been written off as irrecoverable in the accounts of the assessee for the previous year'." Mr. Mullick emphasised that the debt must be one which has become irrecoverable or bad in the previous year. Mr. Mullick's submission was that the debt of Eastern Tyre being 17 years old, it could not be held that, the debt had become a bad debt only after 17 years and in the assessment year in question. He said that the assessee had to show that the debt was a good one prior to the previous year in question and this the assessee had failed to establish. Mr. Mullick relied in this regard on the case of Champalal, first decided by the Allahabad High Court in R. B. Champalal Ramsarup v. CIT [1964] 52 ITR 194, and then the decision was affirmed by the Supreme Court in R. B. Seth Champalal Ram Swarup v. CIT [1968] 68 ITR 181. The Allahabad High Court did opine that the assessee has to show the debt to be a good one prior to the previous year in question. The Supreme Court opined that in the case before it the Tribunal was justified in not treating the debt as a bad debt because there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under section 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Act. It is all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the Commissioner under section 263(1) of the Act. In case he proceeds thereunder after hearing the assessee in pursuance of the notice given by him, then the appeal filed by the assessee under section 253(1)(c) of the Act cannot be treated on the same footing as an appeal against the order of the Appellate Assistant Commissioner passed in assessment proceedings, where both the parties have been given the right of appeal. In this view of the matter, the argument raised on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section to apply nonetheless from the remote years when a debt might have formed part of the revenue account of the assessee. We do not find that in construing the section there is any justification for holding that the previous year should be proximate to the earlier previous year when the debt had passed through the revenue accounts. If we were to hold otherwise, we would have to lay down how proximate the earlier years should be. Should it be one year or five years or 10 years or more ? This sort of rule of thumb based on policies and administrative decisions is not taken by courts of law but by the Legislatures. When the statute clearly provides that an earlier previous year will do, in our opinion any earlier previous year will suffice unless of course there are other disentitling factors not connected with the remoteness of the earlier year from the previous year in question. The Tribunal has opined that although for 17 years the debt was shown in the assessee's accounts as a sundry debt, yet it is a mistake and it should be taken as a trade debt. Mr. Poddar gave us cases where it has been held that the manner in which an entry is shown in the books of the assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bad later on. Mr. Poddar further argued that when different High Courts have taken views by reason of which a change of debtor is not held to change the nature and character of the debt, we should follow the same view unless very good reasons persuade us to decide otherwise. He submitted that the Income-tax Act is an all-India Act and no fewer than three High Courts favoured the view which is in favour of the assessee in these circumstances. He relied on the case of the Gujarat High Court in the case of CIT v. Sarabhai Sons Ltd. and also gave us the case reported at [1983] 143 ITR 473, which is also a Gujarat High Court case. We are of the opinion that this is a very sound policy and as such we opine that the nature and character of the debt did not change by reason of the takeover of the debt by Eastern Tyres from the 11 original purchasers. Mr. Mullick commenced and concluded his arguments by submitting that an assignment of a liability is not contemplated under the Contract Act. Thus the debt of the 11 persons could never be passed on to Eastern Tyres. If the debt could not be passed on, there was no debt which the assessee could knock off as a bad debt. That Eastern Tyre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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