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TMI Blog1986 (2) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... the market value of his assets would not exceed Rs. 2,90,000. It was submitted by him that some of the items among these assets could also not be realised. The creditors simultaneously pressed him for payment and an insolvency petition in IP 14/77 was filed in the Sub-Court, Visakhapatnam, requesting the Court to declare him as an insolvent. This request was rejected by the Court but the Second Addl. Distinct Judge, Visakhapatnam reversed the order of the Sub-Court. Sri S. K. Appala Naidu was adjudged as insolvent in AS No. 98/1982 dt. 31st Aug., 1983. The Court had given directions to the Official Receiver to dispose of the properties of the insolvent within six months. The ITO had enquiries made by his Inspector, who reported that the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) however, rejected the appeal of the assessee relying on the decision of the Madhya Pradesh High Court, and also on the observations in the case of Nanakchand Manaraj Mal vs. CIT (1964) 52 ITR 410 (Punj). There the Court has stated that where a debtor has been adjudicated as insolvent and his estate is in the hands of a receiver, it would not be proper to hold that a debt or any part of it had become bad until the receiver has completed his work. 4. The assessee is in appeal before us. It is submitted that the lower authorities were not correct in rejecting the claim of the assessee for the write off of this sum of Rs. 60,851 merely on the ground that the insolvency proceedings have not been completed, the assets of the debtors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect. It is submitted that even though this ratio of the Bombay High Court decision was applied in the case of trade loss, the same ratio was held to be applicable to the writing off of a trade debt by the Bombay High Court in (1979) 120 ITR 792 (Bom), with specific reference to the earlier decision of the Bombay High Court in Lord s Dairy Farm Ltd. It is pointed out that the assessee has take into account the financial position of the debtor and then came to the conclusion that to the extent of 75 per cent the debt cannot be recovered. The assessee has written off only this amount. It is submitted that if the sales-tax liability of the debt raised in 1980, is taken into account then, even the balance 25 per cent may not be capable of reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e debtor, the existence of priority creditor in the form of sales-tax liabilities and the fact that the debtor was adjudged as insolvent only in 1983. The official receiver has not realised the assets and settled the creditors. 6. Clause (vii) of sub-s. (1) of s. 36 provides for the allowance as a deduction of the amount of any debt or part thereof which is established to have become bad in the previous year. The provision as it is worded does seem to envisage that a part of the debt can also become bad and allowance of bad debt can be given to such part of the debt as had become bad. The Privy Council in F. E. Dinshaw vs. CIT (1934) 2 ITR 319 (PC), has laid down that in order that a debt may be determined to have become bad and irrecover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this debt. There is no dispute as to the aggregate value of the debt owed by Shri K. P. Appala Naidu which is at Rs. 81,153. The debtor has estimated his assets at the figure of Rs. 2,90,000. The ITO had deputed his Inspector to make an assessment of the situation and Inspector reporting in 1984 has estimated the value of the assets of the debtor at Rs. 2.90 lakhs. This assessment of the debtor s assets by the IT Inspector was made in 1984 and we do not find on a perusal of this report that report that it was an assessment of the value as in 1977 as stated by the ITO in his assessment order. On these facts alone and without taking into account the sales tax liability raised in 1980, the assessee could be considered to have hope to recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld in the decision that merely from the statement of the assets and liabilities filed by the debtor of the assessee in insolvency proceedings, it could not determine whether the debt was bad or to what extent it was bad, in the instant case, however, the ITO has verified through his Inspector the financial position to the ITO substantially confirms the actual declaration of the assets and liabilities of the debtor before the insolvency proceedings. In these circumstances, we feel that the position is somewhat different in this case. 9. The Departmental Representative has submitted that if the claim of the assessee is allowed, even when the insolvency proceedings have not been completed in the case of the debtor, the provision of cl. (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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