INCOME TAX ACT, 1961

Section 28

Business loss - Allowability - Loss incidental to business -

Assessee incurred a loss incidental to business, due to the non-recovery of certain business advances made to certain parties in the normal course of its business. It claimed deduction under section 28 read with section 37 as loss being incidental to business and being written off in its books. AO held that deduction claimed on account of advances written off was a claimable deduction only under section 36(1)(vii) read with section 36(2), and not under section 28. Held: There were cogent reasons for non-recovery of certain business advances made to certain parties in the normal course of its business and consequently any loss arising from such writing off cannot be questioned nor the prudence of the businessman and can be questioned. All the submissions and explanation by assessee were not only plausible explanation but also fully supported by documentary evidences filed. Once assessee had any business transaction with any party during the course of which if assessee had incurred any loss and for which detailed justification and explanation had been given with documentary evidences, such a loss cannot be disallowed once there is no controversial material or inquiry denied by the said party. Simply rejecting the explanation on flimsy grounds without any inquiry cannot be sustained. Accordingly, the entire claim of advance written off is allowed.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 14A

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