COMMISSIONER OF INCOME TAX, A.P. vs M/S. T.VEERABHADRA RAO, K. KOTESWARA RAO & CO.

The Supreme Court held that under Section 36(1)(vii) of the Income Tax Act, 1961, a successor firm can write off debts owed by a predecessor firm as irrecoverable and claim them as bad debts. The Court reasoned that when a business is transferred, the rights associated with that business, including the right to claim deductions for bad debts, also transfer to the successor. It was clarified that the successor firm is entitled to deductions even if the debt was previously accounted for by the predecessor firm, as the successor effectively steps into the shoes of the predecessor.