Bad debt deduction depends on proof of irrecoverability in the relevant year; Tribunal finding sustained on evidence.
A bad debt deduction was not allowable because the assessee did not establish that the loan became irrecoverable in the relevant accounting year. The Court noted that the crucial statutory question was whether the debt had actually turned bad in that year, and it found evidence supporting the Tribunal's view that it had not. The debtor still had an unexploited film asset, the write-off occurred before insolvency proceedings, and the surrounding circumstances did not compel the conclusion that irrecoverability arose during the accounting period. The Tribunal's finding was therefore sustained and the deduction was disallowed.
Issues: Whether there was evidence on record to support the Tribunal's finding that the loan had not become irrecoverable during the accounting year and was therefore not allowable as a bad debt.
Analysis: The assessee had advanced the amounts to a film producer in the course of money-lending business and wrote off the debt at the end of the relevant accounting year. The Court held that the crucial question under section 10(2)(xi) was whether the loan had become irrecoverable in that year. On the material before the Tribunal, there was evidence supporting the conclusion that the debt had not yet become irrecoverable: the debtor still had a film asset which had not been exploited at the relevant time, the write-off preceded the insolvency proceedings, and the surrounding circumstances did not compel the conclusion that the loan had become bad in the accounting year.
Conclusion: The Tribunal's finding was supported by evidence, and the claim for deduction as a bad debt for the relevant year was rightly disallowed.
Ratio Decidendi: A bad debt deduction is not allowable unless the assessee establishes, on evidence, that the debt became irrecoverable in the relevant accounting year; where the Tribunal's contrary finding is supported by material on record, it will not be disturbed on reference.
TaxTMI 
AI Drafter ✕
TaxTMI 
