Judgment :- Radhakrishnan, J. This appeal has been preferred under section 260A of the Income-tax Act aggrieved by the order of the Income-tax Appellate Tribunal, Cochin Bench in ITA.No.445/Coch/96 holding that the assessee is entitled for deduction of the two amounts in question, i.e., Rs.47,776/- being the debt due from Vanchinad Leather Ltd. and Rs.27.04.875/- being the debt due from Velton Prefab elements Ltd. under Section 36(1)(vii) of the Income-tax Act. The following questions of law are raised for our consideration: 1. Whether, on the facts and in the circumstances of the case and also in view of the fact that the final of the official liquidator did not become available within the year of account relevant for the present assessment year is not the claim for deduction of the two amounts premature? 2. Whether, on the facts and in the circumstances of the case the Tribunal is right in law in holding that the assessee is entitled for the deduction of the two amounts in question, Rs.47,776/- being the debt due from Vanchinad Leather Ltd. and Rs.27,04,875/- being the debt due from M/s. Velton Prefab Elements Ltd? 3. Whether, on the facts and in the circumstances of the case did not assessee discharge the burden of proving that the two debts in question did become actually bad in the previous year relevant to the Assessment year 1993-94? Assessee is a limited company owned by the Government of Kerala. Return of the income for the year 1993-94 was filed on 16-12-1993 and subsequently it was revised on 18-8-1994 declaring total income as NIL. Assessee had debited an amount of Rs.27,52,651/- towards provision for bad debt which represents Rs.47,776/- due from Vanchinad Leather Ltd. and Rs.27,04,875/- due from Velton Prefab Elements Ltd. Both the above mentioned companies were under orders of winding up. In the case of Vanchinad Leather Ltd. the assets were not sufficient to recover dues to the assessee after paying the secured debts and in the case of Velton prefab elements Ltd. The Official Liquidator had advertised sale of assets and the amount realizable is expected to be Rs.45 lakhs which should be shared between KFC. SBT and KSIDC. Assessee had debited those amounts to P & L account and claimed it as bad debt. SBT and KSIDC. Assessee had debited those amounts to P & L account and claimed it as bad debt. Assessing Officer however, disallowed this claim pointing out that the assessee can make a claim for deduction only when the dues from the borrower companies are finally settled. Further assessing authority also pointed out that the nature of assets owned by the company, technical evaluation of its market value and evidence for the amounts owing to other institutions etc. were not furnished and in the absence of such details it was premature to allow the deduction. Further assessing authority pointed out that the assessee has not written off the amount as contemplated under Section 36(1) (vii) by crediting the borrower’s account. 2. Assessee aggrieved by those orders took up the matter in appeal before the Commissioner of income-tax (Appeals), Trivandrum. Commissioner of appeals rejected the claim for deduction under section 36(1)(vii) holding that for claiming the deduction the assessee should have established that the debt in question had become a bad debt in fact. Further it was also held by the Commissioner that the claim for deduction based on the assessee’s perception of the financial position of the two debtor companies especially when final orders are yet to be passed by the liquidator for winding up of those companies cannot be sustained. 3. Aggrieved by the order of the Commissioner assessee took up the matter in appeal before the Tribunal. Assessee had raised a contention that the mere fact that the winding up proceedings have not attained a finality would not mean that the assessee is not entitled to claim deduction under section 36(1)(vii) of the Income-tax Act. Counsel appearing for the assessee pointed out that the winding up proceedings may continue over a long period running into decades and there is no justification for forcing an assessee to keep alive certain debts even after they have become bad till the final report/order of the Official Liquidator is received. Assessee had placed reliance on the balance sheet of M/s. Velton Prefab Elements Ltd. as on 30-6-1987 in which the details of the secured loans are stated. Balance sheet also relates to the bad debts as well. Assessee had placed reliance on the balance sheet of M/s. Velton Prefab Elements Ltd. as on 30-6-1987 in which the details of the secured loans are stated. Balance sheet also relates to the bad debts as well. Taking note of the materials made available to the Tribunal as well as the financial position of the two debtor companies Tribunal allowed the appeal holding that there is sufficient materials to hold that the debts due to the assessee company are irrecoverable. The Tribunal held that the assessee is entitled to get benefit of deduction under Section 36(1)(vii) of the Act. Aggrieved by the said order this appeal has been preferred by the Commissioner of Income-tax. 4. Senior counsel appearing for the revenue Sri. P.K. Raveendranatha Menon contended that the assessee had failed to prove that the debts had become bad in the previous year relevant to assessment year 1993-94. Counsel contended that section 36(1)(vii) provides for deduction of any bad debt or part thereof which is written off as irrecoverable. Counsel submitted that Vanchinad Leather Ltd. is yet to be would up and in the case of other company liquidator is yet to pass final orders and therefore counsel contended that the mere fact that debt had become bad by itself would not mean that debt had been written off by the assessee. Counsel referred to clause (vii) of section 36(1) which was in force prior to 1-4-1989 and also referred to the amendment effected with effect from 1-4-1989. Counsel referred to the decision in C.I.T. v. Khem Chand Bhadur Chand (1982) 134 ITR 65 and contended that the assessee should establish that debt has actually become bad debt and the mere writing off of debt in books is not sufficient to claim deduction. Reference was also made to the decision of the Madras High Court in T.S.PL.P. Chidambaram Chettiar v. Commr, of Income-tax, (1967 64 ITR 181 and contended that the assessee who claims a bad or doubtful debt has to prove not merely that the debt he seeks to deduct is bad or doubtful but also that it became bad or doubtful in the accounting year. Counsel submitted that the finding of the Tribunal that the debts had become bad before the accounting year was not based on any evidence or material and was also vitiated by an erroneous approach. Counsel submitted that the finding of the Tribunal that the debts had become bad before the accounting year was not based on any evidence or material and was also vitiated by an erroneous approach. Reference was also made to the decision of the Madras High Court in Chettinad Co, (P) Ltd. v. C.I.T. (1984 147 ITR 724). 5. Senior counsel appearing for assessee Sri. Pathrose Mathai on the other hand, contended that Tribunal was justified in holding that the assessee is entitled to get deduction under S.36(1)(vii) of the Income-tax Act since Tribunal was convinced of the recoverability of the bad debts in the facts and circumstances of the case. Counsel submitted the mere fact that winding up proceedings have not attained finality would not mean that the assessee cannot claim deduction under S.36(1)(vii) of the I.T. Act. Counsel made reference to the decision of the Gujarat High Court in Vithaldas H. Dhanjibhai Bardanwala v. C.I.T. (1981) 130 I.T.R. 95. Reference was also made to the decision of the Calcutta High Court in Dr. N.K. Brahmachari v. C.I.T. 104 CTR-Cal-209. 6. We heard counsel on either side at length. Assessee admittedly, is a Government owned company. Indisputedly large amounts are due to the assessee company from Vanchinad Leather Ltd. and Velton Prefab Elements Ltd. Vanchinad Leather Ltd. was recommended for winding up by the BIFR. The balance sheet of the company as on 31-3-1987 would show that the company has a fixed asset worth Rs.97.81 lakhs against the loan content of Rs.2.96 crores. The amount receivable (unsecured loan) from the company, including interest and current account balance was Rs.55.71 lakhs, which was provided for as bad debts during the year 1987-88. KSIDC has invested equity capital amounting to Rs.17.50 lakhs in that company. High Court of Kerala has ordered winding up of the company and the amount of investment is not realizable as the company will have no assets even for paying the secured creditors. Admittedly the amount due to the assesee was unsecured loan of vanchinad Leathers Ltd. and Velton Prefab Elements Ltd. which was also recommended for winding up by BIFR and High Court had ordered winding up. Official Liquidator had advertised for the sale of assets and the amount realizable including the security deposit forfeited was only Rs.45 lakhs. Large amounts are due to various financial institutions from the company. Official Liquidator had advertised for the sale of assets and the amount realizable including the security deposit forfeited was only Rs.45 lakhs. Large amounts are due to various financial institutions from the company. Total amount due to the assessee from the company was Rs.26,72,564/- which is also unsecured loan. During the relevant assessment year winding up proceedings were in progress. Facts would clearly show that there is no possibility of recovering the amount by the assessee company. The balance sheet of M/s. Velton Prefab Elements Ltd. as on 30-6-1987 had shown secured debt at Rs.1,47,28,612/-, but assets was only Rs.50,67,840/-. There is also a loss of Rs.1,58,08,594/- reflected in the balance sheet of the company. Materials produced before the authorities would positively show that there is no possibility of recovering the amount of Rs.27,04,875/- by the assessee. Same is the situation with regard to Vanchinad Leather Ltd. 7. The Tribunal as a final fact finding authority on the basis of the materials came to the conclusion that it would not be possible to recover the bad debts. The Calcutta High Court in Dr. N.K. Brahmachari’s case held that the irrecoverability of a bad debt depends upon the facts and circumstances of each case and it is not necessary for the lender to wait till the debtor company actually goes into liquidation before writing off the loan and interest thereon and claiming the deduction under section 36(1)(vii) of the I.T. Act. Winding up proceedings is a cumbersome process where claims of large number of secured and unsecured creditors have to be settled, which may take considerably long period to attain finality. Creditor companies in a given case could form a conscious judgment of its own as to whether any amount would be recoverable or not and make a provision for bad and doubtful debts. In a given case assessee could establish that there is no possibility of recovering the bad and doubtful debts depending upon the financial position of the debtor company. Assessee can make an honest judgment that the debt has become bad be written off and in fact has written off not in words, but on conduct. 8. In a given case assessee could establish that there is no possibility of recovering the bad and doubtful debts depending upon the financial position of the debtor company. Assessee can make an honest judgment that the debt has become bad be written off and in fact has written off not in words, but on conduct. 8. We find difficult to accept the stand of the assessee officer as well as the commissioner that only if a debtor company is would up through process of law the assessee could claim deduction for writing of bad debts from those debtor companies. We are of the view it is not necessary for the assessee to wait till debtor company actually goes into liquidation before writing off the loan and interest thereon and then to claim deduction under section 36(1)(vii) of the I.T. Act. Assessee in this case is a Government owned company and it is not unreasonable to presume that it would take all possible steps writing off the assets as bad debt. Being a Government owned company it would not be possible to conclude that the attempt of the company would be to gain unfair advantage in claiming bad debts to reduce its tax liability. The Tribunal as a final fact finding authority came to the conclusion that the mere fact that the debtor companies were not would up at the relevant point of time does not mean that the assessee cannot claim deduction under Section 36(1)(vii) of the Act. We are of the view that the Tribunal is right in law in holding that the assessee is entitled to deduction of the two amounts in question, i.e. Rs.47,776/- being the debt due from Vanchinad Leather Ltd., and Rs.27,04,875/- being the debt due from M/s. Velton Prefab Elements Ltd. We have allowed the stand of the Revenue in ITR. 145 of 1998 and 25 of 2000 in the assessee’s case for the year 1988-89 on different facts situation. 9. Under such circumstance appeal lacks merit and the same would stand dismissed. The questions raised are all answered in favour of the assessee and against the revenue.