Bad debt deduction remains allowable despite pending recovery suit when facts show the debt is unlikely to be recovered.

A debt may be written off as bad debt when the conditions under section 36(2) are satisfied, even if a civil recovery suit remains pending. The mere existence of recovery proceedings does not prevent deduction where the surrounding facts show that recovery is unlikely. On the undisputed facts, the debtor's business had closed due to heavy losses and the debt had effectively become irrecoverable, so the assessee was entitled to the deduction in the relevant year and the allowance was upheld.

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Issues: Whether the assessee was entitled to deduction of the amount written off as bad debt in the relevant year notwithstanding pendency of a civil suit for recovery.

Analysis: The factual position was undisputed and the conditions under section 36(2) of the Income-tax Act, 1961 were satisfied. The mere pendency of recovery proceedings did not by itself prevent the debt from being treated as bad, because the point at which a debt becomes bad depends on the circumstances of each case. The debtor's business had closed due to heavy losses and the surrounding facts showed little likelihood of recovery.

Conclusion: The assessee was entitled to deduct the amount as a bad debt in the year under appeal, and the allowance made by the appellate authority was upheld.

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