Bad-debt deduction for a transferred loan was allowed where business records showed genuine irrecoverability during the accounting year.

A debt taken over on division of partnership assets and entered in the assessee's separate money-lending books was treated as a business asset eligible for bad-debt deduction when written off as irrecoverable. The absence of a fresh undertaking from the debtor did not prevent the debt from forming part of the money-lending business, and no novation was required on these facts. Genuineness of the entry, coupled with subsequent realisations and supporting material, established that the debt became bad during the accounting year. The allowance was therefore admissible in favour of the assessee.

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Issues: Whether the sum written off as irrecoverable was a loan made in the ordinary course of the assessee's money-lending business so as to qualify for deduction as a bad debt, and whether the debt had become irrecoverable during the accounting period.

Analysis: Section 10(2)(xi) of the Income-tax Act permits an allowance for a loan made in the ordinary course of a banking or money-lending business where the amount has been written off as irrecoverable. The debt in question was taken over by the assessee on division of the partnership assets and entered in the books of his separate money-lending business. The absence of a fresh undertaking from the debtor did not prevent the debt from becoming part of the assessee's business assets, and no rule of novation was required on these facts. The entry was genuine, subsequent realisations were made, and the finding that the debt became bad in the accounting year was supported by the material on record.

Conclusion: The allowance was admissible under Section 10(2)(xi), and the deduction of the sum of Rs. 5,880 was properly allowed in favour of the assessee.

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