Bad debt deduction and interest levy fail where evidence shows irrecoverability and final assessment results in a refund.

A commercially settled debt may be allowed as a bad debt deduction where evidence shows the amount was written off in the assessee's books after it became irrecoverable; the debtor's continued business or failure to write off the liability itself does not prevent relief. Interest under sections 139(8), 215 and 216 is not sustainable where the final assessment results in a refundable amount, because the basis for charging such interest no longer survives. The assessee obtained relief on both the bad debt claim and the interest levy.

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Issues: (i) whether the assessee was entitled to deduction of the amount written off as bad debt; (ii) whether interest under sections 139(8), 215 and 216 was chargeable where the final assessment resulted in a refundable amount.

Issue (i): whether the assessee was entitled to deduction of the amount written off as bad debt.

Analysis: The assessee produced account copies and an agreement showing that, in the course of regular trading transactions, the debt had been settled commercially after the debtor's financial position deteriorated. The write-off was not treated as premature merely because the debtor had not itself written off the liability or was still in business. The evidence showed that the assessee had, in substance, written off the debt in its books after the amount had become irrecoverable.

Conclusion: The disallowance of the bad debt claim was deleted in favour of the assessee.

Issue (ii): whether interest under sections 139(8), 215 and 216 was chargeable where the final assessment resulted in a refundable amount.

Analysis: On the final assessment, the amount ultimately found refundable to the assessee showed that the basis for charging interest did not survive. The issue was treated as covered by the governing Supreme Court principle that, where the final assessment results in a refund, such interest is not leviable in the manner sought to be charged.

Conclusion: The interest charged under sections 139(8), 215 and 216 was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantive tax issues and was allowed only to that extent, with the assessee obtaining relief on both the bad debt claim and the interest charge.

Ratio Decidendi: A debt commercially settled and written off on the basis of evidence of irrecoverability can be allowed as a bad debt, and interest under the specified provisions cannot survive where the final assessment yields a refundable amount.

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