Bad debt timing turns on real recoverability, not write-off entries, and was fixed in the earlier year on facts.

Whether a debt has become bad is a question of fact, determined by the real possibility of recovery and the evidence available, not by the creditor's unilateral write-off or book entries alone. On the facts, sale of the debtor's only known asset in S. Y. 1996 left no reasonable prospect of recovery, so the debt became irrecoverable in that year. The later transfer entry in S. Y. 1997, payment of tax on interest, and limitation considerations did not shift the bad-debt date. The finding was upheld in favour of the Revenue, and the assessee could not treat the debt as bad in S. Y. 1997.

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Issues: Whether the assessee's debt became a bad debt in S. Y. 1996 or in S. Y. 1997.

Analysis: The question whether a debt has become bad is one of fact, to be determined by the likelihood of its realisation and the evidence available, not by the assessee's own acts of write-off or by entries in the books of account. The sale of the debtor's only known asset in S. Y. 1996 left nothing from which recovery could reasonably be expected, and the later transfer of an amount in S. Y. 1997, the payment of tax on interest, and the circumstance of limitation were not in fixing the date on which the debt became bad.

Conclusion: The debt became a bad debt in S. Y. 1996, not in S. Y. 1997, and the finding was upheld in favour of the Revenue.

Final Conclusion: The reference was answered by holding that the debt had become irrecoverable in the earlier year, and the assessee was not entitled to treat it as a bad debt in S. Y. 1997.

Ratio Decidendi: The date when a debt becomes a bad debt is a factual question governed by the real possibility of recovery, and it cannot be fixed by the creditor's unilateral write-off or by accounting entries alone.

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