Bad debt write-off: absence of admissible evidence of fraud means tax refusal cannot be sustained and deduction must be allowed.

Whether tax authorities had material to deny an assessee's bad debt deduction was decided on the absence of admissible evidence of deliberate fraud; correspondence and ongoing insolvency litigation, including competing creditor priorities, did not suffice to infer fraudulent intent. The legal principle applied requires credible, admissible proof before treating a debt as retained for tax advantage, and factual uncertainties from major pending litigation can justify a creditor awaiting resolution before writing off a debt. Outcome: the refusal lacked sufficient material and the deduction should have been allowed.

---

---

Issues: Whether there was material before the Income-tax Officer to justify refusal to allow the assessee to write off Rs. 23,039 as a bad debt in the year of account 1935-36.

Analysis: The Court examined the correspondence between the assessee and the Official Assignee and the state of the insolvency litigation (including the banks' claims and the Port Trust priority dispute). The Income-tax Officer and the Commissioner based their refusal on a conclusion that the assessee had manufactured evidence and acted fraudulently in postponing the write-off until a profitable year; however, the only materials before the Income-tax authorities were the correspondence and the ongoing litigation, and there was no admissible evidence supporting a finding of fraudulent intent. The Court held that the Income-tax authorities had no sufficient material to sustain the inference that the debt had been deliberately treated as existing until 1935-36 for tax advantage, and that the factual uncertainties arising from major pending litigation made it reasonable for the creditor to await clearer outcomes before writing off the debt.

Conclusion: There was no material before the Income-tax Officer to justify refusal to allow the assessee to write off Rs. 23,039 in the year of account; the reference is answered in the negative and the deduction should have been allowed.

---