Bad debt deduction fails where recoverability is still plausible and the assessee cannot prove irrecoverability at write-off.

A debt is deductible as a bad debt only if the assessee proves that, at the time of write-off, there was no reasonable expectation of recovery and no real hope of realisation. The surrounding conduct here-continued dealings with the debtor, filing a recovery suit, accepting later recoveries, and treating subsequent hundies as receivable-showed that irrecoverability had not been established in the relevant year. The burden of proof remained on the assessee and was not discharged, so the claimed deduction was not allowable and the disallowance was upheld.

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Issues: Whether the debt of Rs. 2,23,162 had become a bad debt in the relevant account year so as to be deductible.

Analysis: A bad debt allowance is available only when the assessee shows that, at the time of writing off, there was no reasonable expectation of recovery and no real hope of realisation from the debtor. The surrounding circumstances showed otherwise: the assessee continued dealings with the debtor, instituted a recovery suit, accepted post-year recoveries, and treated the debtor's later hundies as receivable. These facts supported the conclusion that the assessee had not established that the debt had become irrecoverable in the relevant year. The burden of proving irrecoverability lay on the assessee, and that burden was not discharged.

Conclusion: The debt did not become a bad debt in S.Y. 2004 and the disallowance was upheld, against the assessee.

Final Conclusion: The reference was answered against the assessee, affirming that the claimed deduction was not allowable in the relevant year.

Ratio Decidendi: A debt is deductible as a bad debt only when the assessee proves that, at the time of write-off, there was no reasonable expectation of recovery and no real hope of realisation from the debtor.

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