Bad debt deduction turns on when irrecoverability is proven, not on postponed write-off alone.

Deduction of bad debts is allowable only in the accounting year in which the debt is shown on evidence to have actually become irrecoverable. An objective inquiry is required, supported by material indicating that recovery had become impossible or improbable during that year. A debt that became bad before the relevant year cannot be deducted in a later year, but the assessee is entitled to the deduction if the loss crystallised during the year claimed. The Tribunal's contrary finding was held unsupported by evidence and based on an erroneous focus on the timing of the write-off. The disallowance was therefore unsustainable.

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Issues: Whether the disallowance of the assessee's claim for deduction of two debts as bad debts was lawful when the Tribunal held that the debts had become bad prior to the accounting year.

Analysis: Deduction of bad and doubtful debts under the business income provisions depends on proof that the debt had in fact become bad or doubtful in the relevant accounting year. The relevant enquiry is objective and must be supported by material showing that recovery had become impossible or improbable during that year. A debt that had already become bad before the accounting year cannot be deducted in that year, but the assessee is entitled to the deduction if the debt in fact became bad during that year. The finding of the Tribunal was held to be unsupported by evidence and to rest on an erroneous approach that placed undue emphasis on the assessee's failure to explain why the write-off was postponed.

Conclusion: The disallowance was not sustainable and the question was answered in favour of the assessee.

Ratio Decidendi: A bad debt deduction is allowable only in the year in which the debt is shown on evidence to have actually become irrecoverable, and a factual finding denying that deduction must rest on material evidence.

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