INCOME TAX ACT, 1961

Section 36(1)(vii) Rule 9B

Business deduction under section 36(1)(vii) - Bad debts - Assessee-company engaged into distribution and exhibition of films - AO made disallowance relying on rule 9B

Assessee-company engaged into distribution and exhibition of films claimed loss on pictures. AO relying on rule 9B disallowed assessee's claim. Assessee contended that loss pertained to non-recovery of advances paid. Also, assessee filed additional evidence which were copies of ledger account of advances received and written off by assessee in respect of four movies on account of which assessee was claiming loss. Held: Rule 9B is a specific section to allow deduction in respect of expenditure on acquisition of distribution rights. Assessee was not claiming expenditure incurred on acquisition of movies but non-recovery of advances paid. Accordingly, in case of film distributor who had written off balance outstanding with producers loss sustained was in the course of business and incidental thereto and, therefore, trading loss was allowable under section 28. Therefore, debt which had become bad, could be written off as bad debt without having to establish that it had really become bad. However, issue was set aside to AO for de novo consideration. Additional evidence filed by assessee.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2012-13

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