Bad debt deduction allowed where partial recovery showed the balance became irrecoverable in the relevant year.

Bad debt deductions were allowed where the Tribunal found, on relevant material, that the assessee recovered only part of the outstanding amounts through arbitration during the previous year and the balance became irrecoverable after the award. The High Court treated that conclusion as a finding of fact not open to challenge in reference. It also rejected the department's burden-of-proof argument, since the partial recovery itself showed that the debts became bad in the relevant accounting year and not earlier. The question was answered in favour of the assessee.

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Issues: Whether the debts of Rs. 1,02,356 and Rs. 69,537 were allowable deductions as bad debt for the assessment year 1957-58.

Analysis: The Tribunal found that the assessee realised only Rs. 1,25,000 during the previous year through arbitration and that the balance of the debts became bad after the award. The High Court held that this was a finding of fact based on relevant material and could not be questioned in reference. The department's contention that the assessee had not discharged the burden of proving that the debt became bad in the relevant accounting year was rejected because the partial recovery during the year showed that the debts became bad in that year itself and not earlier.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the department.

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