Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2007 (1) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2007 (1) TMI 147 - HC - Income TaxClosure of the business by the franchisees - Amount due on the franchisees, adjusted by the security deposit and the net amount written off - Claim for deduction writing off bad debt - system of accounting - expenditure incurred on advertisement - Nature of Expenses - HELD THAT:- A perusal of the details given before the Assessing Officer shows that there had been an actual fall in the receipts, which is said to be due to the crash in the USA having a serious impact on the business carried on. A commercial decision to close down the business was taken and thereby the account closed as part of the decision. There is no denial of this fact from the Revenue. As such, factually there is nothing for the Revenue to suspect the motive for writing off the debt. Quite apart from this, by reason of the Direct Tax Laws (Amendment) Act 1987, the question as to whether the debt has become bad or doubtful is a factual one. With the amendment that is brought in with effect from April 1,1989, even taking the view that the benefit could not be claimed as an automatic concomitant of writing off, an honest judgment made at that time when the assessee wrote off the debt, in the light of the events leading to that stage, could not be found fault with. Under the circumstances, the claim made in terms of section 36(1) (vii) cannot be rejected. Having regard to the scope of section 36(1)(vii) and the commercial decision which persuaded the assessee to write off, we do not find any question of law arising from the order of the Tribunal, for admission. Hence, given the understanding by the Board to the provisions also, this appeal fails. Nature of Expenses - Advertisement charges - receipts not matched - When once it is admitted that the expenditure is of revenue nature and incurred fully and exclusively in the business, a further enquiry as to whether the income has flowed thereon from the expenditure, would not be a justifiable ground for rejection. On the other hand, an expenditure satisfying the character as revenue expenditure should be allowed in the assessment. In the decision in CIT v. Southern Roadways Ltd.[2006 (1) TMI 64 - MADRAS HIGH COURT], this court, to which one of us was a party (Justice P.D.D.), referring to a decision of the Division Bench in CIT v. Southern Roadways Ltd.[2002 (9) TMI 19 - MADRAS HIGH COURT], considered the scope of section 37 and held that any expenditure not being in the nature of capital expenditure or personal expenses but laid out or expended wholly and exclusively for the purpose of the business or profession, should be allowed. The Revenue had not made a specific issue before the Tribunal, except to contend that the claim of expenditure in one year and spreading over the income in future years would amount to a hybrid system of accounting not in accordance with the matching principles. However, having regard to our decision as stated, we do not find any justification to admit this appeal. Thus, this appeal is dismissed at the threshold.
|