Bad debt deduction requires proof of irrecoverability in the relevant year; write-off was premature because recovery still appeared possible.

A bad debt deduction was denied because the assessee could not show that the advance had become irrecoverable in the relevant accounting year. The record indicated that the debtor company's financial position had not deteriorated to the point of impossible recovery, and the later claim before the Commissioner of Payments, together with continuing assertions of principal and interest recovery, showed that real prospects of recovery still existed. On that basis, the write-off was treated as premature and the disallowance was upheld.

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Issues: Whether the assessee was entitled to deduction of the written-off amount as a bad debt for the relevant assessment year.

Analysis: The debt arose from advances to the debtor company, but the material on record showed that the company's financial position had not reached a stage where recovery had become impossible during the relevant accounting year. The claim before the Commissioner of Payments was filed later, and the subsequent assertion of interest and principal recovery indicated that the debt was still in the process of realisation. For a debt to qualify as a bad debt, the assessee must establish with evidence that it became irrecoverable in the relevant year; so long as any real prospect of recovery remains, the write-off is premature.

Conclusion: The assessee was not entitled to the deduction, and the disallowance was upheld.

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