Bad debt deduction cannot be denied without evidence of fraudulent postponement or unsupported intent findings.

A deduction for bad debt cannot be refused on an allegation that the assessee fraudulently postponed the write-off unless there is material evidence supporting that inference. Here, the record showed continuing uncertainty over recovery until the relevant year, and correspondence from the Official Assignee indicated that insolvency proceedings had substantially concluded with little or no prospect of a dividend for unsecured creditors. The finding of manufactured evidence and fraudulent intent was unsupported. The bad debt was therefore properly written off in the year of account, and the disallowance could not be sustained.

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Issues: Whether there was material before the Income-tax Officer to justify refusal of the assessee's claim to write off the debt as bad in the relevant year.

Analysis: The assessee wrote off the debt only after receiving correspondence from the Official Assignee indicating that the major insolvency litigations had substantially concluded and that there was little or no prospect of a dividend for unsecured creditors. The refusal to allow the deduction rested on the view that the assessee had fraudulently postponed the write-off to a profitable year and had manufactured evidence to support that position. On the record, there was no material to sustain that conclusion. The earlier insolvency litigation and the later communications from the Official Assignee showed that the prospect of recovery remained uncertain until the relevant year, and the finding of fraudulent intent was unsupported by evidence.

Conclusion: The refusal to allow the deduction was unjustified; the assessee was entitled to write off the whole amount as a bad debt in the year of account.

Final Conclusion: The reference was answered in favour of the assessee, and the disallowance of the bad debt claim could not be sustained.

Ratio Decidendi: A deduction for bad debt cannot be refused on a finding of fraudulent postponement unless there is material evidence supporting that inference; where the record shows only uncertainty as to recovery and a bona fide write-off, the claim must be allowed.

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