Bad debt deduction turns on when the debt actually became irrecoverable, not on the assessee's unilateral declaration.

Bad debt deduction depends on whether the debt in fact became irrecoverable in the relevant accounting year, because profits are computed on the basis of that year as a self-contained period. An assessee cannot unilaterally decide when a debt became bad, and a debt that had already become bad before the accounting year is not deductible in that year. The question when a debt became bad is one of fact for the tribunal, determined on all relevant evidence. Mere age of the debt or the fact that it is statute-barred does not by itself establish that it is bad.

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Issues: Whether an assessee has an option to decide unilaterally when a debt becomes bad and thereby claim deduction in the year of write-off, and whether a debt that had become bad before the accounting year can be deducted in computing the profits and gains of that year.

Analysis: Bad debts are allowable in computing business profits only because true profits and gains cannot be ascertained without taking into account losses incurred in the relevant year. The accounting year is a separate self-contained period, and a loss or bad debt incurred before its commencement cannot be deducted in that year. Whether a debt is bad, and when it became bad, is a question of fact to be determined by the appropriate tribunal on all relevant and admissible evidence. The assessee is not the sole arbiter of that question, and a debt is not treated as bad merely because it is old or statute-barred. A statute-barred debt may still not be bad, and the age of the debt is only one relevant circumstance.

Conclusion: The assessee had no unilateral option to declare the debts bad, and the disallowance of the deduction was justified on the facts found.

Final Conclusion: The assessment authorities were entitled to refuse deduction of the sum representing debts found to have become bad before the accounting year, and the earlier disallowance was restored.

Ratio Decidendi: A bad debt is deductible only if it was in fact incurred in the relevant accounting year, and the question when a debt became bad is a factual issue to be decided by the tribunal on the basis of all relevant evidence, not by the assessee's unilateral declaration.

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