Bad-debt deduction turns on when the debt actually became irrecoverable, not merely when it was written off.

A loan advanced in the course of a money-lending business may qualify for bad-debt deduction, but the decisive question is when the debt actually became irrecoverable. The Bombay HC noted that the assessee was carrying on money-lending activity and the advance was treated as a business loan, not an isolated arrangement. It also stated that deduction cannot rest on the mere write-off; the debt must in fact have become irrecoverable in the relevant year of account. The timing of irrecoverability is a question of fact for the tribunal, and a finding that the debt was only practically irrecoverable in an earlier year is not enough without a clear factual conclusion.

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Issues: (i) Whether the monetary transaction with Niranjan Prakash was a loan made in the course of the assessee's money-lending business; (ii) whether the Income-tax Officer could disallow the deduction on the ground that the loan had become irrecoverable in an earlier year than the year in which it was written off.

Issue (i): Whether the monetary transaction with Niranjan Prakash was a loan made in the course of the assessee's money-lending business.

Analysis: The deduction claimed depended on the character of the transaction. The factual material showed that the assessee was carrying on money-lending business and had advanced moneys on the security of the film. The Tribunal's finding, though not happily expressed, supported the conclusion that the advance was a money-lending transaction and not merely an isolated business arrangement outside the assessee's money-lending activity.

Conclusion: The transaction was a loan made in the course of the assessee's money-lending business, in favour of the assessee.

Issue (ii): Whether the Income-tax Officer could disallow the deduction on the ground that the loan had become irrecoverable in an earlier year than the year in which it was written off.

Analysis: Under Section 10(2)(xi) of the Income-tax Act, the material requirement was not merely that the debt had been written off, but that it had in fact become irrecoverable in the relevant year of account. The question whether a debt had become bad or irrecoverable, and when that point of time was reached, was a question of fact for the appropriate tribunal. A finding that the debt had become only "practically irrecoverable" in an earlier year was insufficient unless there was a clear factual finding that it had in fact become irrecoverable before the year for which deduction was claimed.

Conclusion: The Income-tax Officer could disallow the deduction if the loan had in fact become irrecoverable in an earlier year, and the matter had to be found on that factual basis.

Final Conclusion: The transaction was treated as a money-lending advance, but the deduction issue depended on a factual finding as to when the debt became irrecoverable, so the matter was sent back for that determination.

Ratio Decidendi: For deduction of a bad debt, the decisive question is when the debt actually became irrecoverable, and that is a question of fact to be determined by the tribunal, not by the assessee's unilateral write-off.

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