Bad debt deduction requires proof debt turned bad during the year; prior uncollectibility defeats the claim.

A bad debt deduction was denied where surrounding circumstances showed that the advances were not made in the course of the assessee's money-lending business. Continuous dealings, absence of security, the character of the running accounts, and long treatment of the sums as outstanding balances supported that conclusion. The debts were also held to have become bad before the relevant accounting year because they remained unpaid for many years, no interest was charged, no recovery steps were taken, and there was no real prospect of recovery during the year. A claim for bad debt is allowable only if the assessee proves the debt was good at the start of the year and became bad during that year.

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Issues: (i) Whether there was material to support the finding that the two advances were not made in the course of the assessee's money-lending business. (ii) Whether there was material to support the finding that the debts had become bad prior to the relevant accounting year.

Issue (i): Whether there was material to support the finding that the two advances were not made in the course of the assessee's money-lending business.

Analysis: The surrounding circumstances showed continuous dealings, absence of security, the nature of the running accounts, and the prolonged treatment of the sums as outstanding balances rather than ordinary money-lending advances. On that material, the finding that the advances were not made in the course of money-lending business could not be said to be unsupported.

Conclusion: The finding was supported by material and was upheld against the assessee.

Issue (ii): Whether there was material to support the finding that the debts had become bad prior to the relevant accounting year.

Analysis: The debts had remained unpaid for many years, no interest was charged, no recovery steps were taken, and the evidence did not show any real prospect of recovery in the relevant year. The Tribunal was therefore justified in concluding that the debts had become bad before the accounting year in question, and the assessee had not established that they first became bad during that year.

Conclusion: The finding that the debts had become bad prior to the relevant year was supported by material and was upheld against the assessee.

Final Conclusion: The reference was answered wholly in favour of the revenue, with the assessee failing to show that the debts were allowable as bad debts in the relevant accounting year.

Ratio Decidendi: A claim for bad debt is allowable only if the assessee proves that the debt was good at the beginning of the relevant year and became bad during that year, and concurrent findings supported by material evidence will not be disturbed.

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