Trading loss must be claimed in the year incurred; later deduction failed after an earlier bona fide debt waiver.

An amount written off under a bona fide settlement was treated as a trading loss rather than a bad debt, because the assessee had irrevocably waived most of the debt and restricted recovery to a fixed balance. The loss was deductible only in the year it was incurred, so a loss arising on the 1957-58 waiver could not be claimed in assessment year 1959-60 merely because earlier assessments had proceeded on a different basis. The claim for deduction therefore failed for the year under appeal.

---

---

Issues: Whether the amount written off by the assessee was allowable as a deduction in the assessment year 1959-60 either as a bad debt under section 10(2)(xi) of the Income-tax Act, 1922, or as a trading loss under section 10(1) of that Act.

Analysis: The arrangement of 1 April 1957 constituted a bona fide settlement under which the assessee irrevocably waived the greater part of the debt and confined its right to recovery to Rs. 10,000. On that footing, the loss was not a bad debt in the ordinary sense for the year in question, but a trading loss which arose when the waiver and write-off were made. A trading loss is deductible only in the year in which it is incurred. Since the loss occurred in 1957-58, it could not be carried forward and claimed for 1959-60 merely because the assessee had earlier pursued a different basis of deduction or because the revenue had taken a different view in prior assessments.

Conclusion: The amount was not allowable as a deduction in the assessment year 1959-60.

Final Conclusion: The question referred was answered against the assessee, and the claim for deduction failed for the year under appeal.

Ratio Decidendi: A trading loss is deductible only in the year in which it is incurred, and a loss that arose on a bona fide and binding waiver in an earlier year cannot be claimed in a later year merely because it was wrongly pursued on another footing in prior assessments.

---