Bad debts: Section 36(1)(vii): A. Y. 2007-08: Assessee taking all assets and liabilities of two web portals from its holding company as going concerns: Debt due to holding company: Assessee is entitled to write off: Bad debt allowable:

Consequent
upon a scheme of demerger, the assessee company had acquired all the
assets and liabilities of two web based portals that were hitherto being
operated by the assessee’s holding company. The portals were acquired
as going concerns. In the A. Y. 2007-08, the Assessing Officer rejected
the claim for deduction of bad debt of Rs. 3,63,31,432/- on the ground
that these debts related to the years 2003 to 2006 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 contravened section
36(1)(vii). The CIT(A) and the Tribunal allowed the assessee’s claim.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“i)
When the original owner would have been entitled to write off the bad
debts, the successor who acquires 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.

ii)
The assesee had acquired all the assets and liabilities of two web based
portals from its holding company. The assessee, for the A. Y. 2007-08,
had written off the bad debts acquired from the holding company.
Therefore, the asessee was entitled to write off the irrecoverable bad
debts related to the years 2003 to 2006 when the web portals were run by
the holding company.

iii) The appeal is dismissed.”