Income Tax Act, 1961

--Business deduction under section 36(1)(vii)--Bad-debts Whether assessee entitled to write-off debts acquired from holding company--Assessee-company, consequent upon a scheme of demerger had acquired all the assets and liabilities of two web based portals that were hitherto being operated by the assessee's holding company. Shareholders of the holding company were issued shares in the assessee-company pursuant to the demerger and assessee thereafter continued to run and operate those two web portals. In the very first year of operation, after the said demerger, the assessee-company had written off bad debts in its books. According to assessing officer these debts related to the years when the web portals were run and operated by the holding company and that the assessee could not have written off the bad debts, as such act contravened section 36(1)(vii) therefore, he rejected the claim in respect of the bad debts written off. Held: Was not justified, as following the decision of the Supreme Court in the case of CIT v. Veerabhadra Rao 1985 TaxPub(DT) 1300 (SC) : (1985) 155 ITR 152 (SC), it was concluded that when the original owner would have been entitled to write off the bad debts, the successor who acquired the assets and liabilities from the previous owner would also be entitled to treat the bad debts in the same manner in which the original owner was entitled under law. Thus there was no reason as to why the debts so transferred should not be entitled to the same treatment in the hands of successors.