Bad debt write-off turns on objective irrecoverability, while property loss claims require proof of actual user in the relevant year.

A debt may be written off as bad where, on an objective appraisal of all relevant circumstances, the assessee bona fide treats it as irrecoverable; the timing of the write-off is relevant but not conclusive, and later recovery steps do not defeat the claim unless they show the debt was still genuinely regarded as recoverable. For property-related deductions, actual user of the asset in the relevant accounting year must be established on the material before the revenue authorities. Past use or mere availability for use is insufficient, and without proof of actual user the claim for loss on sale under section 10(2)(vii) fails.

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Issues: (i) Whether the write-off of the debt due from New Era Textile Mills Ltd. as a bad debt was premature and therefore disallowable; (ii) Whether the Pagalkhana property at Nagpur was used for the assessee's business during the relevant accounting year; (iii) Whether the assessee was entitled to claim loss on sale of the Pagalkhana property under section 10(2)(vii).

Issue (i): Whether the write-off of the debt due from New Era Textile Mills Ltd. as a bad debt was premature and therefore disallowable.

Analysis: The question whether a debt has become bad depends on the surrounding facts and circumstances and must be determined objectively on the material on record. The timing of the write-off is not conclusive, but it is a relevant circumstance. Subsequent conduct may be considered only if it shows that the assessee still regarded the debt as recoverable. The Tribunal failed to consider a material statement of the debtor-company's managing director, ignored relevant circumstances indicating weakness of the debtor's financial position, and drew an impermissible inference merely from the continuation of the suit and related steps. Mere continuation of legal proceedings did not, on these facts, establish that the assessee still had a real hope of recovery.

Conclusion: The write-off was not premature and the disallowance could not be sustained; the answer was in favour of the assessee.

Issue (ii): Whether the Pagalkhana property at Nagpur was used for the assessee's business during the relevant accounting year.

Analysis: The Tribunal examined the accounts and found no evidence of actual business activity or actual user of the property in the relevant year. The contention based on passive use or availability for use was not argued before the Tribunal and did not arise from the reference as framed. On the material placed before the revenue authorities, the assessee did not establish actual user during the accounting year.

Conclusion: The finding that the property was not used for the business in the relevant year was upheld; the answer was against the assessee.

Issue (iii): Whether the assessee was entitled to claim loss on sale of the Pagalkhana property under section 10(2)(vii).

Analysis: The claim under section 10(2)(vii) depended on establishing the relevant user requirement in the accounting year. No presumption of continued use arose merely from past use. Since actual user in the relevant year was not proved, the assessee could not succeed on the claim for loss on sale.

Conclusion: The claim for loss on sale was rightly rejected; the answer was against the assessee.

Final Conclusion: The reference succeeded only in relation to the bad-debt issue, while the claims relating to the Nagpur property failed; the assessee obtained partial relief overall.

Ratio Decidendi: A debt may be treated as bad when, on an objective appraisal of all relevant circumstances, the assessee bona fide regards it as irrecoverable; later recovery efforts do not by themselves negate the write-off unless they show that the debt was still genuinely regarded as recoverable at the time of write-off.

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