Bad debt allowance depends on when irrecoverability arose; accounting treatment is material evidence, and prior write-off is not mandatory.

For bad debt allowance under Section 10(2)(xi) of the Income-tax Act, 1922, the decisive question is when the debt became irrecoverable in the Income-tax Officer's estimation, subject to the amount actually written off in the books. Actual prior write-off is not an absolute prerequisite. The assessee's own accounting treatment, including crediting sums to an interest reserve account and reducing the debt in the balance sheet, was relevant evidence that part of the debt had already become doubtful in earlier years. On that basis, the restricted allowance was upheld and the full claim was rejected.

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Issues: Whether, for purposes of bad debt allowance under Section 10(2)(xi) of the Income-tax Act, 1922, the assessee was entitled to claim the full amount written off in the chargeable accounting period, and whether the earlier crediting of part of the debt to an interest reserve account could be treated as showing that those amounts had become irrecoverable in earlier years.

Analysis: The allowance provision empowers the Income-tax Officer to estimate the sum that has become irrecoverable, subject to the ceiling of the amount actually written off in the books. The provision does not require that a debt must necessarily have been actually written off in a prior year before the Officer may treat it as having become bad in that year. The assessee's own treatment of the amounts in its accounts, including crediting them to an interest reserve account and reducing the debts in the balance sheet, was relevant evidence that those sums had already been regarded as doubtful and had effectively become irrecoverable earlier. The findings of the departmental authorities and the Tribunal sufficiently supported the conclusion that the disputed amount had not remained wholly alive until the accounting year in question.

Conclusion: The assessee was not entitled to the whole claim of Rs. 10,00,000. The allowance of Rs. 6,10,052 was upheld.

Final Conclusion: The reference failed and the assessee's challenge to the restricted bad debt allowance was rejected.

Ratio Decidendi: Under Section 10(2)(xi) of the Income-tax Act, 1922, the decisive question is when the debt became irrecoverable in the Income-tax Officer's estimation, and the assessee's own accounting treatment is admissible and material evidence on that question, while actual prior write-off is not an absolute prerequisite.

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