This is appeal filed by assessee and only ground pressed in this appeal is that AAC was not justified in upholding disallowance of bad debt of Rs. 14,062. assessee is HUF dealing in business as Kachcha Adatia. During asst. yr. 1981-82, relevant to accounting period ending Diwali, 1980, assessee claimed deduction of Rs. 14,062 as bad debt against M/s Maheshwari & Co. Before ITO it was explained that assessee supplied cotton to above party during accounting period relevant for asst. yr. 1977-78 and sum of Rs. 14,062 was outstanding amount since asst. yr. 1978-79. It was submitted that firm M/s Maheshwari & Co., discontinued its business, one of its partners died and, hence, there were no chances of recovery and not only assessee but various other parties also had to write-off amounts outstanding against M/s Maheshwari & Co. ITO did not accept assessee s contention. He found that one of debtors of M/s Maheshwari & Co., filed suit in Civil Court but said suit was not contested. He also found that there was not evidence to show that assessee made any efforts to recover outstanding debt. On these facts, ITO disallowed assessee s claim of bad debt amounting to Rs. 14,062. assessee went in appeal and before AAC it was submitted that during accounting year ending Diwali, 1976 goods were sold to M/s Maheshwari & Co. and out of sale price due sum of Rs. 5000 was received on 2nd June, 1977 while remaining amount of Rs. 14,062 was not received even after waiting for 3 years. He further submitted that Secretary of Kachcha Adatia Association, Khandwa, had given certificate before ITO that sum of Rs. 4,77,944 was due from M/s Maheshwari & Co., of various parties and there was hardly any chance of recovery of same. assessee filed before AAC copy of judgment dt. 3rd March, 1982 in Civil Suit No. 2/80 in Court of Civil Judge, Class II, Khandwa, which was filed by M/s Nutan Trading Co. On basis of above facts, it was urged that claim of bad debt should be allowed. AAC, however, did not accept assessee s contention and upheld disallowance of assessee s claim with following observations: "There is no evidence on record that appellant did take any steps for recovery of amount due. Kachcha Adatia s Association in my opinion is not competent to certify capacity or otherwise of particular party to discharge its liability of debts and therefore certificate its stated to have been issued by Association is of no avail. Besides, I find that Nutan Trading Co. had filed suit against M/s Maheshwari & Co. for recovery of its debts amounting to Rs. 1,01,712 but this suit was dismissed vide judgment of Civil Judge on account of non-compliance on behalf of plaintiff. This only leads one to believe that M/s Maheshwari & Co., and M/s Nutan Trading Co., had entered into some sort of amicable settlement and that is why suitor was not inclined to press suit resulting into its dismissal on account of non- compliance. In circumstances, I am of opinion that ITO was justified in disallowing claim and, therefore, I decline to interfere." Aggrieved by above findings, assessee has come up in present appeal. Before me, ld. counsel of assessee submitted that on 9th July, 1979 registered notice was issued by assessee to above party that is was received back with remark "Out of station". He submitted that various other parties of Khandwa including M/s Nutan Trading Co. had to write-off outstanding dues from M/s Maheshwari & Co. and in this connection filed copy of order of AAC in case of M/s Nutan Trading Co. relating to asst. yr. 1982-83 wherein claim of bad debt of Rs. 50,857 against M/s Maheshwari Trading Co. was allowed by AAC in that case. ld. counsel also referred to decision of Gujarat High Court in Sarangpur Cotton Mfg. Co. Ltd. vs. CIT (1982) 32 CTR (Guj) 247: (1983) 143 ITR 166 (Guj) and submitted that four criteria laid down by their Lordships in above, case have been duly fulfilled in this case, and hence, assessee s claim of bad debt should have been allowed since there was no ray of hope for recovery of outstanding amount from M/s Maheshwari & Co. ld. representative of Department has placed reliance on orders of authorities below and submitted that assessee has failed to establish that there was no ray of hope for recovery of outstanding dues from M/s Maheshwari & Co. After carefully considering rival contentions I am of view that assessee s claim for bad debt should be allowed. It appears that assessee sold cotton to M/s Maheshwari & Co. during accounting period relevant for asst. yr. 1977-78 for total sum of Rs. 4,00,287. He realised Rs. 3,81,235 during that assessment year and further sum of Rs. 5000 was realised during asst. yr. 1978-79. balance sum of Rs. 14,062 could not be realised even after lapse of three years. In meantime, M/s Maheshwari & Co., closed down its business, and one of partners of said business, namely Motilal, dies in month of December, 1980. assessee after waiting for three years, chose to write-off amount as prudent businessman as there was no chance of recovery and various other parties, including M/s Nutan Trading Co. Khandwa, had to write-off outstanding dues against M/s Maheshwari Trading Co. In case of M/s Nutan Trading Co., claim of bad debt has already been allowed by AAC. Considering overall circumstances of case and placing reliance on decision of Gujarat High Court in (1982) 31 CTR (Guj) 247: (1983) 143 ITR 166 (Guj), (Sarangpur Cotton Mfg. Co. vs. CIT), I am of opinion that assessee s claim of bad debt for sum of Rs. 14,062 against M/s Maheshwari Trading Co., Khandwa, should be allowed as deduction. In result, appeal is allowed. *** NARAYAN SAHAI JANKILAL v. INCOME TAX OFFICER