Bad debt deduction requires proof of irrecoverability in the relevant year; continued recovery efforts defeated the claim.

A debt is deductible as a bad debt only if, on the objective facts of the relevant previous year, the assessee can show that recovery had become commercially hopeless. The write-off itself is relevant but not conclusive, and the assessee bears the burden of proving irrecoverability on a practical business assessment. Subsequent recovery steps and pursuit of decrees may test the genuineness of the claim. On the facts, the assessee continued recovery efforts and failed to show that the debts had lost every real chance of recovery in the assessment year, so deduction was rightly denied.

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Issues: Whether the assessee had adduced relevant material to establish that the debts written off had become bad and irrecoverable in the relevant assessment year, so as to justify deduction.

Analysis: The governing principle under the Income-tax Act is that a debt is allowable as a bad debt only when it is established to have become bad in the previous year, and the question must be determined on the facts and circumstances of the relevant year from a practical and business point of view. The assessee bears the burden of showing that there was no reasonable expectation of recovery when the write-off was made. Subsequent events are relevant only to test the genuineness of the assessee's contemporaneous judgment, but they do not by themselves decide the issue. On the facts, the assessee had pursued decrees and continued recovery steps, and the Tribunal was entitled to hold that the assessee had not shown that the debts had lost every real chance of recovery in the assessment year.

Conclusion: The assessee failed to establish that the debts had become bad in the relevant year; the finding against deduction was sustainable and the answer was against the assessee.

Ratio Decidendi: A debt is deductible as a bad debt only if, on objective facts existing in the relevant previous year, the assessee can reasonably establish irrecoverability on a practical and commercial assessment; the assessee's write-off is relevant but not conclusive, and the burden of proof remains on the assessee.

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