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TMI Blog1982 (11) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1961-62, it claimed a sum of Rs. 10,31,319 as bad debt which was the amount due from one M/s. Heerachand Poonamchand. The ITO disallowed the claim, whereupon an appeal was preferred by the assessee, but was dismissed as not pressed. This claim for bad debt was made on the basis of the entries made in the account books of the assessee on October 20, 1960. The assessee filed two suits, viz., O.S. Nos. 5160 and 5/64, on the file of the Chief judge, City Civil Court, Hyderabad, against the debtor for the total amount due from him. Both the suits were decreed on December 31, 1965. O.S. No. 5/60 was decreed for Rs. 5,26,888 with costs and future interest, while O.S. No. 5/64 was decreed for Rs. 1,98,842 with costs and interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim. The ITO was, however, of the opinion, on consideration of the material placed before him that there was no effective and complete settlement between the parties on May 31, 1967, and, therefore, the assessee cannot claim the said amount as bad debt in the accounting year relevant to the assessment year 1968-69. The reasons given by the ITO are: (i) that no payment was made by the debtor as per the compromise; (ii) that the compromise was incomplete inasmuch as the penalty clauses were still under negotiation as on May 31, 1967 ; (iii) that the assessee had obtained decrees against the debtor and had taken out execution against the properties of the debtor, from which the amount decreed could be recovered ; and (iv) that the appeals pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise was recorded by the court, an amount of Rs. 16,500 was paid. It was thus of the opinion that there was a complete and final settlement between the parties on May 31, 1967, whereunder the debt due from the debtor was scaled down from Rs. 10 lakhs odd to Rs. 5,30,000 and hence the balance amount of Rs. 5,01,320 ought to be allowed as a bad debt. Thereupon the Department applied to the Tribunal to refer the aforesaid question for the opinion of this court, which was accordingly done. Mr. M. Suryanarayana Murthy, learned counsel appearing for the Department, contended, firstly, that the assessee who claimed the entire sum of Rs. 10 lakhs as bad debt in the assessment year 1961-62 and on its being disallowed, filed an appeal but chose to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted the basis for the claim for bad debt made in 1961-62 were reversed on May 31, 1967. The entire amount of Rs. 10 lakhs odd was shown as due from the debtor and then the figure was scaled down to Rs. 5,30,000 in view of the compromise/settlement arrived at on that day. In the above circumstances, the fact of disallowance of the claim for bid debt during the assessment year 1961-62 cannot constitute a ground for precluding the assessee from making the present claim of bad debt in the assessment year 1968-69. Now, coming to the second question, we have already set out the finding of the Tribunal (at p. 51 of the material paper book) to the effect that the genuineness of the compromise arrived at on May 31, 1967, cannot be dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties could operate as a valid discharge or satisfaction of a decree passed by the court. It was not necessary that it should be in writing or that it should have been arrived at in the presence of the court. In case the decree-holder disputed, the judgment-debtor could plead and prove such an oral settlement and if proved, it would have been a complete answer to the execution proceedings. This fact shows that the oral settlement/compromise arrived at between the parties on May 31, 1967, was an effective and enforceable compromise and that its enforceability or validity did not depend upon its being recorded by the court. For this reason, we must hold that the ITO and the AAC were not right in observing that the settlement arrived at betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt against a debtor which was dismissed by the trial court and his appeal to the High Court was also dismissed on 29th September, 1941. The assessee filed a petition for leave to the Privy Council but did not press it. In the assessment proceedings, the Tribunal held that the debt must be deemed to have become bad only on 29th September, 1941, when the High Court dismissed the assessee's appeal and not at any earlier point of time. There can be no dispute about the proposition. So long as the appeal was pending on the file of the High Court there was a hope of the assessee succeeding and, therefore, it cannot be said that, at any point of time earlier to the decision of the High Court, the debt could be treated to have become bad. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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