1982 (11) TMI 36 - HC - Income Tax

Settlement Date Key: High Court Allows Bad Debt Claim for 1968-69 Assessment Year

The High Court upheld the Income-tax Appellate Tribunal's decision, ruling that a sum claimed as a bad debt for the assessment year 1968-69 was allowable. ... Bad Debt, Necessity Of Specific Question In Reference, Reference Issues:1. Allowability of a sum as a bad debt for the assessment year 1968-69.Analysis:The judgment of the court addressed the issue of whether a sum of Rs. 5,01,320 claimed as a bad debt for the assessment year 1968-69 was allowable. The assessee, a partnership firm engaged in money-lending, had claimed this amount as a bad debt based on a settlement with a debtor on May 31, 1967. The Income Tax Officer (ITO) disallowed the claim citing reasons such as non-payment by the debtor, pending appeals, and incomplete negotiations on penalty clauses. The assessee appealed, and the Income-tax Appellate Tribunal eventually ruled in favor of the assessee, noting the genuineness of the compromise and the payment made post-settlement. The Tribunal found a complete and final settlement between the parties on May 31, 1967, scaling down the debt to Rs. 5,30,000. The Department sought a reference to the High Court, challenging the settlement's effectiveness and enforceability.The High Court analyzed the Tribunal's findings and the legal principles regarding bad debts. It upheld the Tribunal's decision, emphasizing that the settlement on May 31, 1967, was genuine and enforceable, regardless of being recorded by the court. The Court rejected the Department's argument that the settlement needed to be recorded for validity. It distinguished previous cases where debts were deemed bad only upon final irrecoverability, stating that in this case, the settlement date was crucial. The Court concluded that the assessee was entitled to claim the balance amount as a bad debt based on the settlement reached on May 31, 1967, and dismissed the Department's contentions. The judgment highlighted the importance of the settlement date and the enforceability of oral agreements in determining bad debts, ruling in favor of the assessee.