TMI Blog1989 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... usive of sales tax, insurance, etc. In the ordinary course of business, this amount was shown in the account books of the firm Shri Krishnakumar Mills was wound up by the Gujarat High Court with the result that the petitioner could not get even a single pie by way of repayment of this amount. The petitioner, therefore, showed this amount as bad debt in the accounting year 1972-73. However, the Income-tax Officer disallowed the said claim on the ground that the debt had not become bad during the accounting year and, as such, it was prematurely written off. This decision of the Income-tax Officer was challenged before the Appellate Assistant Commissioner of Income-tax. The learned appellate court held that this writing off of the claim was premature. The appellate court, therefore, directed the Income-tax Officer to reconsider this claim in the subsequent assessment year and decide it afresh. For the assessment year 1975-76, the petitioner again claimed before the Income-tax Officer that this claim was written off. In support of his claim, he produced some letters received from the Official Liquidator and some other judgments of the Appellate Assistant Commissioner of Incometax, Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Official Liquidator. During the continuance of the winding up proceedings, Mr. Shah, the Official Liquidator, sent a letter to the petitioner. A copy of this letter can be found at annexure-1 in the record. It is dated April 21, 1975. Enough to point out at this stage that the petitioner was informed that all the assets of Shri Krishnakumar Mills (Pvt.) Ltd., were sold for a consideration of Rs. 43,25,000 in the year 1974. According to the Official Liquidator, as against these assets, there was a liability of Rs. 26,98,812 towards accrued debts and Rs. 4,06,404 towards preferential claims of the employees. Thus, the preferential liability was to the tune of Rs. 31,05,216. Deducting the secured liability, a sum of Rs. 12,19,784 would remain with the Official Liquidator for distribution. The Official Liquidator further informed the petitioner that the profits under section 41(2) of the income-tax Act may arise on account of the sales of fixed assets at a price higher than the written down value and that this would also be assessable to income-tax with the result that there would hardly be anything with the liquidator from which the unsecured debts could be paid. In short, what was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Commissioner of Income-tax directing reconsideration of this point subsequently. From the material that was placed before the appellate court, it came to the conclusion that the petitioner was simply an unsecured creditor and there is hardly any scope for the petitioner to collect the debt and that the Income-tax Officer had, in other cases of similar nature, adjudicated such items as bad debts. On these considerations, the Appellate Assistant Commissioner of Income-tax directed that the firm should get relief of Rs. 83,937 with the further direction that if and when the petitioner received any amount towards his claim, the Department can then tax this amount subsequently. Mr. Thakar, the learned advocate for the petitioner, urged before us that this order of the learned Appellate Assistant Commissioner of Incometax was a very rational order which calls for no interference at the hands of the appellate court. However, the Income-tax Officer preferred an appeal before the Appellate Tribunal. A copy of this judgment can be found at annexure-7. It appears that all these three circumstances were brought before the Income-tax Appellate Tribunal. The fact that the company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the amount which in the opinion of the Assessing Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become payable by the company. Sub-section (3) of section 178 of the Income-tax Act prohibits the liquidator from parting with any assets of the company or the property in his hands until he has been notified by the Assessing Officer under sub-section (2). There is nothing to show, nor has it been averred by the respondent that no notice as contemplated under section 178(2) was served by the liquidator. What section 178(3) lays down is that the liquidator is precluded from transferring the assets once notice has been given by the Assessing Officer'. Reference was made to the ratio laid down in ITO v. Official Liquidator [1975] 101 ITR 470, where the Andhra Pradesh High Court held that the income-tax liability of the company in liquidation, is entitled to preferential treatment. Thus, the liability accruing under section 41(2) of the Income-tax Act is never contemplated to be a contingent liability, but it accrues immediately on the sale of the assets of the company in liquidation. This sale was in 1974 as is evident from the letter addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monstrative proof which is quite infallible." This court extracted the following observations from Anderton and Halstead Ltd. v. Birrell [1931] 16 TC 200 (KB) (at p. 805) : "The principle of this decision is that if a debt is written off as bad and is treated as such for tax purposes, the account for the previous period cannot be reopened for the purpose of bringing in the debt as trading receipt merely because, in a subsequent accounting period, it is found to be a good debt. It is true that what all is required is an honest judgment on the part of the assessee at the time when he makes the write-off in the light of events up to that stage and not in the light of later happenings. But it cannot be said that in order to determine the question whether the assessee could have believed that the debt was bad on a particular date, his subsequent conduct treating the debtor as solvent and sound, would be irrelevant and inadmissible." The following observations from Sidhramappa Andannappa Manvi v. CIT [1952] 21 ITR 333 (Bom) were also reproduced (at p. 343) : "Now the question as to whether a debt is bad debt or not is a question of fact and that question should be determined from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical with the grounds made in the present litigation. The Appellate Assistant Commissioner allowed these claims as bad debts and that order has not been challenged by the Department which means that the order has been accepted. Fourthly, similar claims were made by others at different places and the income-tax authorities allowed those claims of bad debts. These are all admitted facts. These were the circumstances which were placed before the incometax authorities by the petitioner. The Appellate Tribunal rejected this appeal only on two grounds : (1) that the liability under section 41(2) was contingent, and (2) this liability was not preferential vis a vis the unsecured creditors. No reason was given as to why decisions of the income-tax authorities to treat the claims of Bhaidas Karsandas as bad debts could be ignored. What was urged before us by Mr. Thakar was that his client has been discriminately treated in this adjudication, whereas others including Bhaidas Karsandas were treated differently on the same facts. This argument was not repelled by Mr. Shelat, the learned advocate for the respondent. There is thus something inherent in the record itself which shows that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or imparting justice and not for penalising the litigants for their faults. Even otherwise, this court would not be justified in rejecting this petition on technical grounds when we have heard it on merits. In L. Hirday Narain v. ITO [1970] 78 ITR 26 (SC), this court observed in paragraph 12 of the judgment as follows (at p. 31 of 78 ITR): "An order under section 35 of the Income-tax Act is not appealable. It is true that a petition to revise the order could be moved before the Commissioner of Income-tax. But, Hirday Narain moved a petition in the High Court of Allahabad and the High Court entertained that petition. If the High Court had not entertained his petition, Hirday Narain could have moved the Commissioner in revision, because at the date on which the petition was moved the period prescribed by section 33A of the Act had not expired. We are unable to hold that because a revision application could have been moved for an order correcting the order of the Incometax Officer under section 35, but was not moved, the High Court would be justified in dismissing as not maintainable the petition, which was entertained and was heard on merits." Similar view has been taken by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders passed by the judicial or quasi-judicial Tribunals are patently wrong, this court would not be justified in refusing to exercise its extraordinary jurisdiction if justice demands. In these circumstances, we do not find favour with the objection raised by Mr. Shelat. The position which prevails is crystal clear. The petitioner, as an assessee, showed his bad debt at Rs. 83,937. He is treating this as a bad debt. There are good reasons for him to treat the same as a bad debt. He applied to the Income-tax Officer during the assessment year 1972-73 to accept this as a bad debt and assess his income accordingly. The Income-tax Officer rejected that prayer. He went in appeal and the appellate court observed that though at that particular time this claim was premature, it could be reconsidered at a subsequent stage. He again moved the Incometax Officer in 1975-76 and pressed his claim that this was a bad debt. In support of his claim, he produced on record the documentary evidence to show that he had all the reasons to believe that this claim cannot be satisfied and, as such, is a bad debt. He also put the material before the Incometax Officer that a similar claim made in simil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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