Bad debt deduction requires proof of debt and irrecoverability, and inconsistent business-loss claims will not stand on the same record.

A bad debt deduction requires proof of both a genuine debt and its irrecoverability in the relevant year. On the facts, items 1 to 4 were found not to be genuine debts, and items 5 to 9, though genuine, were not shown to have become irrecoverable in the year of account. The assessee could not shift to an inconsistent claim that the same amounts were business losses or losses incidental to business, because that alternative case was not established on the record. The disputed amounts were therefore not deductible as bad debts or as business losses under section 10(2)(xv).

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Issues: (i) whether the sum of Rs. 1,90,841 represented debts which became bad or doubtful debts in the year of account; (ii) whether the said sum was allowable as a business loss under section 10(2)(xv) or as a loss incidental to the assessee's business.

Issue (i): whether the sum of Rs. 1,90,841 represented debts which became bad or doubtful debts in the year of account.

Analysis: To claim a bad debt deduction, the assessee had to establish both the existence of a debt and that it became irrecoverable in the relevant year. For items 1 to 4, the Tribunal found that the alleged constituents were not genuine constituents, and the assessee had consistently proceeded on the contrary footing; the alternative business-loss case was therefore not open on the record. For items 5 to 9, the Tribunal accepted that the constituents were genuine, but held that the debts did not become irrecoverable in the year of account. That finding was one of fact and there was material to support it, so it could not be disturbed in reference jurisdiction.

Conclusion: Items 1 to 4 were not debts, and items 5 to 9 did not become bad debts. The issue was answered against the assessee.

Issue (ii): whether the said sum was allowable as a business loss under section 10(2)(xv) or as a loss incidental to the assessee's business.

Analysis: The assessee had throughout the proceedings advanced the case that the losses were suffered on behalf of constituents and were therefore bad debts. He could not, on the same record, shift to a wholly inconsistent case that the transactions were his own business transactions and that the amount was a business loss. The plea of commercial expediency also failed because it depended on a finding that the transactions were genuinely undertaken on behalf of constituents, which had not been established for items 1 to 4, while for items 5 to 9 the loss had not been shown to have become irrecoverable in the relevant year.

Conclusion: The amount was not allowable as a business loss under section 10(2)(xv), nor as a loss incidental to the assessee's business. The issue was answered against the assessee.

Final Conclusion: The reference was answered wholly in favour of the Revenue: the disputed amounts were not deductible either as bad debts or as business losses, and the assessee was directed to bear the costs.

Ratio Decidendi: A bad debt deduction is allowable only when the assessee proves both the existence of a debt and its irrecoverability in the relevant year, and a wholly inconsistent alternative case cannot be substituted on reference to claim business-loss deduction for the same amount.

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