JUDGMENT [ENTITY], J.
1. The extraordinary powers of this court under [SECTION] and [SECTION] of the [ACT] are sought to be invoked for quashing the orders passed by the Income-tax Appellate Tribunal, Nagpur on December 22, 1978, May 19, 1979, and March 10, 1980 (annexures 7, 8 and 9), for a writ of mandamus against the respondent directing him to allow the claim of bad debt amounting to Rs. 83,937 for the assessment year 1975-76.
2. The facts giving rise to this litigation may be briefly stated as follows. The petitioner is a partnership firm having its place of business at Shegaon in Khamgaon Tahsil of Buldana District. This firm is an income-tax assessee. It is dealing in cotton business at Shegaon. In the course of their usual business, the firm sold 91 bales of cotton to Shri Krishnakumar Mills, Mahua, in Gujarat State in the accounting year 1969-70. The total price was Rs. 83,937 inclusive 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 a 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.
3. 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 income-tax, Bombay. The Income-tax Officer, however, did not find favour with the petitioner's claim and the disallowed the claim. This order was again challenged before the Appellate [ENTITY]. On considering all the documents on record and on hearing both the parties, the learned appellate authority held that this claim was quite justified and be allowed the appeal. This order came to be challenged by the Income-tax Officer before the Income-tax Appellate Tribunal, Nagpur. The Appellate Tribunal did not find favour with the appellate order. It allowed the appeal on two counts : (1) that the tax liability on the Mill Co. in liquidation was merely a contingent liability, and (2) that this would rank after the assessee's claim which is prior in order of time. On these considerations, the learned Appellate Tribunal set aside the order passed by the Appellate Assistant Commissioner and restored the order passed by the Income-tax Officer. This order was passed by the Tribunal on December 22, 1978.
4. The petitioner then applied for a reference under [SECTION] of the [ACT]. This application came to be rejected by the Tribunal by its order and dated May 19, 1979, on the ground that no question of law was involved, and as such, there was no necessity for making any reference. The petitioner then applied for rectification of a mistake apparent on the face of the record in the order passed on December 22, 1978. This application also came to be rejected by an order dated March 10, 1980, holding that there was no mistake in the order of the Tribunal and that the Tribunal had no authority to rectify the mistake, it is these three orders which have been challenged in this petition.
5. Mr. [ENTITY], the learned advocate for the petitioner, took us extensively through the record. It is not necessary at this stage to traverse through the whole factual arena. Enough to point out the following facts which are not at all in dispute. The petitioner sold 91 bales of cotton worth Rs. 83,937 to Shri Krishnakumar Mills (Pvt.) Ltd., Mahua, in Gujarat State, in the assessment year 1969-70. The mills did not make any payment. At the instance of [ENTITY], a petition for winding up of Shri Krishnakumar Mills (Pvt.) Ltd. came to be filed before the High Court and the High Court, on hearing both the parties, allowed that petition. One Mr. [ENTITY] was appointed as the Official Liquidator. During the continuance of the winding up proceedings, Mr. [ENTITY], 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] of the [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 conveyed by the Official Liquidator was that there are no assets which could satisfy the unsecured liability including the amount of the petitioner.
6. On these admitted facts, it will now be necessary to proceed further in the matter. Mr. [ENTITY], the learned advocate for the petitioner, urged before us that sufficient evidence has been led on record to show that the assets in the hands of the liquidator are too short to satisfy the unsecured debt including the debt of the petitioner and there was hardly any chance of covering this debt with the result that he has bona fide reason to believe that these debts are bad debts. Secondly, it was urged by Mr. [ENTITY], the learned advocate for the petitioner, that similar claims were made by the creditors before the authorities at Bombay who allowed those claims and accepted that these are bad debts. With this admitted position, Mr. [ENTITY] strenuously urged before us that it was not proper for the learned Income-tax Officer and also for the Income-tax Appellate Tribunal to come to the conclusion that these were not bad debts. We were taken through the order passed by the Income-tax Officer and a copy of this order can be found at annexure-3. What was urged before us was that, in spite of the directions given by the Appellate [ENTITY] to reconsider this point, the learned Income-tax Officer refused to reconsider the same on flimsy grounds which lack logic. We were also taken through the order passed by the learned Appellate [ENTITY], Akola Range, and also the orders passed by the Income-tax Appellate Tribunal. The Appellate [ENTITY] found as a fact that though considerable time elapsed after the assessments year 1972-73, the petitioner did not receive any amount from the company and, as such, it could be reasonably said that it was a bad debt. It is also clear from the order of the Appellate Assistant Commissioner that the firm made frantic efforts to receive payment of the amount and the whole correspondence was put before the court. The appellate court came to the conclusion that it was a burden on the part of the petitioner to write off the amount as a bad debt. The learned Appellate [ENTITY] considered the effect of the letter addressed by the Official Liquidator and also the previous order of the Appellate [ENTITY] 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 a bad debts. On these considerations, the Appellate [ENTITY] 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.
7. Mr. [ENTITY], the learned advocate for the petitioner, urged before us that this order of the learned Appellate [ENTITY] 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 liquidated and the Official Liquidator was appointed is more or less an undisputed fact. The letter addressed by the Official Liquidator was also placed before the Appellate Tribunal. Reference to this letter in detail has been made in the order passed by the Appellate Tribunal. Thirdly, the fact that on sale of the assets of the liquidated company, a tax liability arises under [SECTION] of the [ACT] was also placed before the court. Fourthly, the fact that writing off of claims on similar grounds were allowed by the Appellate Assistant Commissioner at Bombay was also brought before the Appellate Tribunal. It is on these admitted positions that the Appellate Tribunal was called upon to adjudicate upon the character of this letter.
8. What the Appellate Tribunal found was that deducting the secured debts, Rs. 12,19,784 were still in the hands of the Official Liquidator and the total unsecured debts were to the tune of Rs. 15,76,085 that the liability under [SECTION] of the [ACT] was only a contingent liability and, thirdly, that the liability under [SECTION] of the [ACT] being subsequent, the unsecured creditors can be paid sumptuously. On this reasoning, the learned Appellate Tribunal allowed the appeal, set aside the order of the Appellate [ENTITY] and restored the order of the Income-tax Officer.
9. Mr. [ENTITY], the learned advocate for the petitioner, strenuously urged before us that the rationale adopted by the Income-tax Appellate Tribunal had hardly any basis. The finding recorded by the Appellate Tribunal that the liability under [SECTION] was only a contingent liability was very much assailed before us. As a matter of fact, it is difficult to appreciate the meaning of "contingent liability." In law, it was never a contingent liability. That liability arose out of the transfer of the assets of the liquidated company on a particular date.
10. The contingent liability presupposes occurrence of some conditions on which the liability will arise. On the other hand, the liability created under [SECTION] of the [ACT] does not admit of any conditions. It automatically accrues. [SECTION] of the [ACT] makes it obligatory on the Assessing Officer to notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator 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. [SECTION] of the [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] was served by the liquidator. What [SECTION] lays down is that the liquidator is precluded from transferring the assets one a notice has been given the Assessing Officer.
11. Reference was made to the ratio laid down in [PRECEDENT], 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] of the [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 addressed by the Official Liquidator. The principle underlying [SECTION] of the [ACT] is that the claim of the Income-tax Department is to be set apart and it is only on setting it apart that other claims are to be satisfied. If it is so, then the claim of the income-tax is definitely preferential vis a vis unsecured claims.
12. It is interesting to note at this stage that this claim was preferred in the assessment year 1975-76 and the sale of the assets of the company was made in 1974. We have now to look at the position prevailing at that time. It is not the case of the respondent that there was no income-tax liability. On the other hand, in spite of the lapse of eight years during the pendency of this petition, the respondent has not enquired from their counterparts in Gujarat as to whether any enquiry was made and whether any claim was assessed. Even at the stage of arguments, Mr. [ENTITY], the learned advocate for the respondent, could not throw any light on this factual position. Legal consequences are to be presumed in such circumstances and it has to be held that when the petitioner preferred the claim, there was a liability to income-tax against the Official Liquidator. This was a legal liability arising from the statute. This position has not been controverted. In these circumstances, it was futile for the learned Income-tax Appellate Tribunal to record the finding that it was only a contingent liability.
13. Equally futile was the observation of the learned Appellate Tribunal that this liability being subsequent, it could be satisfied only after the previous creditors were paid. This is directly in contravention of the provisions of [SECTION] of the [ACT]. Both these findings are thus perverse.
14. Mr. [ENTITY], the learned advocate for the respondent, urged before us that when the petitioner came before the Income-tax Officer with his case that these debts were bad debts, the burden was definitely upon him to establish the same. As far as the proposition of law is concerned, nobody can have any dispute with the same. This High Court in [PRECEDENT] observed (at p. 805) :
"While the onus of establishing that the write-off of the alleged bad debt is proper and permissible in the circumstances of the case is undoubtedly upon the assessee, the Department cannot insist on demonstrative proof which is quite infallible."
15. This court extracted the following observations from [PRECEDENT] (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 a 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 a bad on a particular date, his subsequent conduct, treating the debtor as solvent and sound, would be irrelevant and inadmissible."
16. The following observations from [PRECEDENT] 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 the point of view of the possibility of the realisation of the debt. If there is any possibility that the debt can be realised, then the debt does not become a bad debt, but when there is no possibility at all and when it is ascertained as a fact that on a particular date the debt became finally irrecoverable that is the case when the debt becomes a bad debt."
17. If, on the background of these observations, we examine the case, we find that the claim of the petitioner that the debt is a bad debt is not only bona fide, but it is supported by other circumstances also. Firstly, that the liability occurred in the year 1969-70 and even till the filing of the petition and also even till the hearing of the petition, the petitioner did not get anything. A period of nine years elapsed. There is a specific averment in the petition made in 1980 that the petitioner has not received anything. Mr. [ENTITY] stated before us that even till the date of hearing, his client did not receive any amount from the Official Liquidator. The factual position obtaining, uncontroverted as it is, has to be accepted. The letter addressed by the Official Liquidator shows that, on satisfaction of the secured debts, the amount of Rs. 12,19,784 remains with the liquidator and as against this amount, the unsecured debts are to the tune of Rs. 15,76,085. This is the factual position stated by the liquidator. The liquidator, however, points out that the tax liability accruing under [SECTION] of the [ACT] would be preferential to the claims of the unsecured creditors and on satisfying that liability, nothing will remain with the liquidator. We have already commented on the liability flowing from [SECTION] of the [ACT]. We have already held that it is not a contingent liability but it is a specific liability accruing on the sale of the assets of the liquidated company. This liability would definitely have a preference. Thirdly, material was placed before the court that one [ENTITY] (on whose application the company was wound up) had also a claim against the liquidated company. His claim was to the tune of Rs. 2,44,974. He had treated this claim as a bad debt and the Appellate [ENTITY], Bombay Range, allowed that claim for the assessment year of 1972-73. The grounds made before the Appellate [ENTITY] were identical 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.
18. These were the circumstances which were placed before the income-tax authorities by the petitioner. The Appellate Tribunal rejected this appeal only on two grounds : (1) that the liability under [SECTION] 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 [ENTITY] as bad debts could be ignored. What was urge before us by Mr.[ENTITY] was that his client has been discriminately treated in this adjudication, whereas other including [ENTITY] were treated differently on the same facts. This argument was not repelled by Mr. [ENTITY], the learned advocate for the respondent. There is thus something inherent in the record itself which shows that the present petitioner was treated differently and with discrimination, though he was sailing in the same boat wherein [ENTITY] and others also were sailing.
19. Regarding the rationale adopted by the learned Appellate Tribunal, we have absolutely no doubt in our mind that the findings recorded by the Tribunal that the liability under [SECTION] of the [ACT] is contingent and that it gives no preference are the findings inconstant with the record. Thus, on merits, we do find that there is a mistake apparent on the fact of the record as far as the Appellate Tribunal is concerned and this circumstance itself enables this court to issue a writ of certiorari.
20. Mr. [ENTITY], the learned advocate for the respondent, urged before us that this is a case which has been scrutinised by three courts below and a particular finding of fact has been recorded. He also urged before us that the remedies permitted under the [ACT] have not been followed, though available, and, therefore, this court should not exercise its extraordinary jurisdiction. As a matter of fact, regarding the maintainability of this petition, it was at the stage of hearing that Mr. [ENTITY] urged before us that this petition could not be entertained. He conceded that there was no inherent lack of jurisdiction as far as this court under [SECTION] of the [ACT] is very vast and it cannot be legitimately said that this court cannot entertain this petition. What Mr. [ENTITY] urged before us was that there is a finding of a judicial Tribunal and that finding concerns the question of fact and, therefore, this court should not interfere with the same. It was also urged by him that under [SECTION] of the [ACT], the petitioner had remedy to come to the High Court within six months from the date of the order and he, not having availed of this remedy, could not come to this court invoking the extraordinary jurisdiction of this court. According to us, this argument is too technical to be accepted. Having admitted this petition long back in 1980, it will be too cruel to ask the petitioner to resort to the remedy which was available to him in 1980. The period of nine years has already elapsed. Not entertaining this petition at this stage would amount to penalising the petitioner for a technical flaw. Courts are made for 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. [ENTITY] v. ITO , this court observed in paragraph 12 of the judgment as follows (at p. 31 of 78 ITR) :
"An order under [SECTION] of the [ACT] is not appealable. It is true that a petition to revise the order could be moved before the Commissioner of Income-tax. But, [ENTITY] moved a petition in the High Court of Allahabad and the High Court entertained his petition, [ENTITY] could have moved the Commissioner in revision, because at the date on which the petition was moved the period prescribed by [SECTION] of the Act had not expired. We are unable that because a revision application could have been moved for an order correcting the order of the Income-tax Officer under [SECTION], 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."
21. Similar view has been taken by his court in [PRECEDENT], where this court observed that although the assessee had an alternative remedy by way of appeal, the court would give relief because the Commissioner had exceeded his jurisdiction in passing the order and also because the petition has been pending for a long time and the assessee was a small concern with a small turnover. The Punjab and Haryana High Court in [PRECEDENT] also took a similar view. A Division Bench of this court in [PRECEDENT] repelled the arguments that the extraordinary jurisdiction should not be invoked when the alternative remedy under the [ACT] is available. This court observed that a pure question of law having an impact on several public bodies is involved and the petition are already filed more than 12 months before an in these circumstances the existence of an alternative remedy would be no bar to entertain the petition. Similarly, the Division Bench of the Allahabad High Court in [PRECEDENT] observed that though ordinarily the High Court would not exercise its extraordinary jurisdiction under [SECTION] of the [ACT] against order of an Income-tax Officer, still the court, in appropriate circumstances, would exercise those powers when the orders passed by the authorities are patently erroneous.
22. What was contended before us by Mr. [ENTITY] is that the Income-tax Appellate Tribunal having rejected the prayer for reference under [SECTION] of the [ACT], the remedy was still available to the petitioner to approach the High Court. That remedy not having been followed, we should not exercise the extraordinary powers. The factual position, as it stands, is that the remedy under [SECTION] of the [ACT] was available in 1980. The present petition came to be filed in 1980. It was admitted after notice to the other party. Now, more than eight years have already lapsed. The remedy which was available to the petitioner then is not now available to them because of the lapse of time. Had this point been raised at the time of admission, the petitioner would have very well resorted to that remedy, but that door is closed now for him. This is one aspect. Another aspect is that when this court, on merits, finds that the orders passed by the judicial or quasi-judicial Tribunals are patently wrong, this court would not be justified in refusing to exercise its extra-ordinary jurisdiction if justice demands. In these circumstances, we do not find favour with the objection raised by Mr. [ENTITY].
23. 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 goods 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 is claim was premature, it could be reconsidered at a subsequent stage. He again moved the Income-tax Officer in 1975-76 and pressed his claim that this was a bad debt. In support of he 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 Income-tax Officer that a similar claim made in similar circumstances by different assessees were allowed by the same Department (though by different officers) and the Income-tax Department ultimately accepted these decisions. He also produced the material in the form of a letter from the Official Liquidator to show that there was hardly any possibility of this debt being satisfied. In spite of all this material and in spite of the lapse of years, without a single pie being repaid, the Appellate Tribunal has taken a view that this cannot be treated as a bad debt. The reasons given are flimsy and we have commented sufficiently only validity of these reasons. We have absolutely no doubt in our mind that the assumptions which the Income-tax Appellate Tribunal has made have no logic. We are satisfied even on facts that this claim is a bad debt. We would also point out at this stage the observations made by the learned Appellate [ENTITY] in his order dated October 5, 1977 (annexure-6). The appellate authority granted relief of Rs. 83,937 with a further direction to the Income-tax Officer to tax the said amount as and when received by the petitioner-firm in subsequent years, if any. This was, in our opinion, a most rational and logical direction. The Income-tax Appellate Tribunal did not pay any regard even to this rational direction. In fact, if in any case, the petitioner gets this amount, the income-tax authorities can assess that amount. There is no loss to the Department. However, in the present case, the petitioner is a double loser. He has shown Rs. 83,937 in his account books, though he has not received it. The position which prevails today is that he did not receive anything from this amount, but he has been assessed. There is thus double jeopardy which he has to meet and the only way out was the rational view taken by the learned Appellate [ENTITY].
24. According to us, by recording the findings that the claim under [SECTION] of the [ACT] was contingent and that unsecured creditors would have a preferential claim are the findings which cannot be borne our on record. This, according to us, is a mistake apparent on the face of the record which justifies this court in issuing a writ of certiorari.
25. In the result, this petition succeeds. The order passed by the Income-tax Appellate Tribunal on December 22, 1978 (annexure-7) and the subsequent order passed by the same Tribunal on May 19, 1979, and March 10, 1980, are hereby quashed, and the order passed by the Appellate [ENTITY] on October 5, 1977 (annexure-6) is restored. Rule is made absolute in the above terms. There shall be no order as to costs.