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2019 (6) TMI 1119 - AT - Income TaxAllowability of business loss - Advance given for supply of refractory materials in the normal course of its business of trading and manufacturing of refractories and written off as irrecoverable as company became sick - HELD THAT:- We note that the loss of ₹ 10,55,360/-must be held to arise out of the carrying on of business and to be incidental to it and that is how it would be dealt with according to ordinary commercial principles of trading, hence it is an allowable business loss. Judgment of the Hon’ble Supreme Court in the case of CIT vs. Nainital Bank Ltd. [1964 (9) TMI 11 - SUPREME COURT] wherein it was held that under section 10(1) of Indian Income Tax Act, 1922 (which is similar / identical to section 28 of the 1961 Act), the trading loss of a business is deductible in computing the profits earned by a business. However, every loss is not deductible unless it is incurred in carrying out the operation of a business and is incidental to the operation. We note that on the similar facts in the case of Ram Chander Shiv Narayan vs. CIT [1977 (11) TMI 2 - SUPREME COURT] has held that loss is deductible where there is a direct and proximate nexus between the operation and the loss or where the loss is incidental to it, as, without the business operation and doing all that is incidental to it, no profit can be earned. Therefore, based on the facts and circumstances of the case, as narrated above, we delete addition and allow ground No. 1 raised by the assessee. Addition u/s 14A read with Rule 8D - interest -free funds - assessee has not made any disallowances u/s 14A in its computation - HELD THAT:- Investment made in the earlier years has been carried forward during the impugned F.Y 2011-12, as it is evident from the aforesaid particulars where the balance at the end of the year shows the same investment as appearing in the earlier year(s). Accordingly, it may safely be deduced that during the year under consideration, no interest bearing funds were deployed for making any exempt income bearing investments. Assessee company had sufficient interest -free funds to meet its investments. Therefore, it may be safely deduced that investments in shares were financed out of the interest free funds available with the Assessee. Accordingly, no disallowance is called for u/s 14A. We delete the addition under Rule 8D(2) (ii) of the Rules. Disallowance under Rule 8D (2) (iii) we note that AO has disallowed ₹ 6,665/-. We note that the AO has not taken into account the dividend bearing securities for the purpose of computing average investment.
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