Bad debt deduction depends on bona fide assessment of irrecoverability, not later suit or decree alone.

Bad debt deduction turns on the facts of each case and on the assessee's genuine judgment as to when a debt has become irrecoverable. Where goods were supplied, cheques were dishonoured, and the assessee waited before writing off the amount, a later suit and decree did not by themselves disprove the earlier decision to treat the debt as bad. A bona fide and honest write-off can therefore support deduction as bad debt, or alternatively as business loss, if the assessee's judgment is not shown to be insincere.

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Issues: Whether the assessee was justified in writing off the amount as bad debt in the assessment year in question and whether the deletion of the addition was sustainable.

Analysis: The assessee had supplied goods, the cheques were dishonoured, and the Tribunal found that the assessee waited for some time before writing off the amount as irrecoverable. The year in which a debt becomes bad depends on the facts of each case and on the assessee's judgment, unless that judgment is shown to be not genuine. The subsequent suit and decree did not by themselves negate the assessee's view that the amount had already become unrecoverable in the relevant year.

Conclusion: The write-off was based on a genuine and honest judgment, and the assessee was entitled to deduction of the amount as bad debt or, alternatively, as business loss. The question was answered against the Revenue and in favour of the assessee.

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