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Assessment of a bad debt for deduction from income under the Income Tax Act based on limitation period and recoverability. Analysis: The case involved a dispute regarding the deduction of a debt amounting to Rs. 30,580 as a bad debt in the assessment year 1985-86. The debt was owed by a debtor named Janki Das and had been acknowledged in the assessee's books until 1982-83, after which no further interest was charged. The Income-tax Officer and the Assistant Commissioner disallowed the deduction, citing that the debt had become barred by limitation in 1982-83 and was too old to be claimed as a bad debt in 1985-86. Upon appeal to the Commissioner, it was argued that the debt should be considered bad when it becomes irrecoverable, not just when it becomes barred by limitation. The Commissioner, after a further inquiry, acknowledged that the debt's recoverability should be assessed based on whether it had actually become irrecoverable, not just when it became barred by limitation. The Commissioner's finding was criticized for being inconclusive, as it did not definitively establish whether the debt had indeed become irrecoverable by 1985-86. The High Court criticized the Commissioner's approach, stating that the inquiry conducted post the Court's order was rushed and did not provide any substantial evidence to support the decision. The Court emphasized that the presumption of a debt being bad when it is barred by limitation is rebuttable based on the specific circumstances of the case. The Court ultimately ruled in favor of the assessee, allowing the deduction of the debt amount from the income of the assessment year 1985-86, as the debt had effectively become irrecoverable before that period, irrespective of the limitation period. In conclusion, the High Court found that the assessee was entitled to the deduction of the bad debt amount from the income for the year 1985-86, as the debt had ceased to exist as a notional liability before that period, based on the assessment of its recoverability rather than just the limitation period. The Court directed the refund of the deposit made by the assessee and awarded additional costs for the hearing. The reference was answered in favor of the assessee.
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