| The Tax Publishers2020 TaxPub(DT) 3447 (Mum-Trib) INCOME TAX ACT, 1961
Section 36(1)(vii)
Where assessee claimed that he was carrying on lottery business under two limbs (in name of proprietary concern), revenue was not justified in denying expenses claimed for bad debts and other expenses, which were debited to the profit and loss account of proprietary concern (R) of assessee, on allegation that business of R was closed, because R was a part of the same business of running lottery agency carried on by assessee at different locations.
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Business deduction under section 36(1)(vii) - Assessee was carrying his lottery business under two limbs (in name of proprietary concern) - Denial of expenses debited to profit and loss account of proprietary concern (R) of assessee -
Assessee challenged order of CIT(A) in sustaining the disallowance of expenses (inclusive of bad debts written off) debited to the profit & loss account of proprietary concern of the assessee (R), made by AO on allegation that business of R was closed. Assessee contended that CIT(A) failed to appreciate that R was a part of the same business of running lottery agency carried on by assessee at different locations, though in different names; and therefore, assessee continued to carry on the business that entitled him to claim the aforesaid legitimate business expenses (including bad debts written off). Held: CIT(A) while affirming the action of AO also held that R and A were two different and distinct businesses carried on by assessee and therefore, they did not constitute the same business. As held that only stoppage of the business activities of R, no deduction was admissible for an expenditure including the bad debts. As held that merely recovering dues and discharging liability after discontinuance of business activity did not amount to carry on business and that deeming provision of section 41(1) could not be extended merely income was offered to tax under section 41. Case law relied by revenue in Karnataka Instrade Corporation Ltd. v. ACIT, was also not helpful to the revenue. In the said case it was held that in order to allow business loss under section 72(1)(i) condition is that assessee should carry on business in year under appeal and it is only against profits of such business that brought forward loss can be set off. Where assessee's profits were assessed under section 41(1) as business income, said profits did not represent profits and gains of any business carried on by assessee and therefore, brought forward business loss was not allowable against profits assessed under section 41(1). In case in hand, assessee throughout the proceedings was claiming that he was carrying on his lottery business under two limbs and was entitled for the deductions of bed debts and other expenses.
Distinguished:Karnataka Instrade Corporation Ltd. v. ACIT (2010) 127 ITD 74 (Bang) : 2010 TaxPub(DT) 0336 (Bang-Trib)
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