9911796707
TMI Blog1992 (6) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 41(1) for further consideration and allowed the deduction of bad debt to the extent of Rs. 15,74,150. The assessee is in appeal in respect of the assessment under section 41(1) and the disallowance of the other bad debt. While the revenue is in appeal against the allowance of one bad debt. 2. With reference to the assessment under section 41(1) the brief facts are that the assessee had run up an overdraft account to the extent of Rs. 1,04,15,022 (wrongly stated as 1,04,12,317 in the assessment order). After negotiations an agreement was entered into in 1983 by which the assessee paid into account a sum of Rs. 50,00,000 in full and final settlement and the bank released all the securities credited in favour of the bank. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of both sides and perused the terms of the agreement between the assessee and the bank. That agreement does not specifically state anything about the appropriation of the amount of 50 lakh paid by the assessee in discharge of the debt. Section 60 of the Contract Act provides where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion. At the same time the rule is well established that money is to be first applied to the payment of interest and when that is satisfied, towards the payment of capital. If a debtor stipulates that the money is to be applied only to the principal, the creditor need not accept the money on those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,150 from M/s Satyanarayana Bros. (P.) Ltd. The assessee had written off these debts as irrecoverable in the accounts of the previous year. The ITO was of the view that M/s Satyanarayana Bros. continued to have contracts with Port Blair Civil Works and therefore there was every possibility of the assessee recovering the amount. As regards the debt of M/s Satyanarayana Bros. (P.) Ltd., he was of the view that the assessee could recover the amount when the company is liquidated. He also noted that out of the amount due from that company a sum of Rs. 10 lakh had been given by the assessee as a capital amount and it could not be written off as a bad debt. On appeal the Commissioner (A) was that M/s Satyanarayana Bros. having continued to have w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, it was contended on behalf of the revenue relying on the decision in Chettinad Co. (P.) Ltd. v. CIT [1984] 147 ITR 724 (Mad.) that mere liquidation was not sufficient to show that the assessee has no ray of hope in getting the money. It was also submitted in the decision in Madan Gopal Bagla v. CIT [1956] 30 ITR 174 (SC) that accommodation debt should not be treated as a bad debt from a business and it can be only regarded as a capital loss. 6. On a consideration of the rival submissions, we are of the opinion that this issue also requires further consideration by the ITO. We find that with regard to the debt from M/s Satyanarayana Bros., the ITO had not taken into account the fact that the contracts of that firm had been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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