2014 (4) TMI 281 - HC - Income Tax

Allowability of Business expenses and losses - Whether the Tribunal was justified in holding that the business expenditure/ business loss cannot be allowed until and unless the appellant has made an entry in the books of accounts, by write off the amount and charged off in the profit and loss account Held that - The question of law at this juncture would not arise for consideration until the appellant establishes before the Assessing Authority that the amount has been actually treated as the business loss based on the instructions issued by the RBI due to the said amount being classified as non-recoverable thus, the matter is remitted back to the AO for fresh reconsideration Decided partly in favour of Assessee.

Summary

Issues:
Assessment of business expenditure claimed under Section 37 of the Income Tax Act without reflecting it in the profit and loss account as per accounting standards.

Analysis:
The appellant contested an order related to the assessment years 2007-08, challenging the disallowance of business expenditure/business loss claimed without reflecting it in the profit and loss account. The appellant invested in a bank, and a portion of the investment was deemed irrecoverable based on RBI instructions. The appellant sought tax benefits under Section 37 of the Income Tax Act for the unrecoverable amount. However, the revenue argued that without proper reflection in the profit and loss account and lack of evidence to support the treatment as non-recoverable, the claim could not be granted.

The appellant relied on a Supreme Court judgment stating that entries need not always be reflected in the books. However, the appellate authority and assessment order highlighted the lack of evidence regarding the actual write-off as a business loss. The court emphasized the necessity for the appellant to demonstrate before the Assessing Authority that the amount was indeed treated as a business loss due to being classified as non-recoverable based on RBI instructions.

Consequently, the court set aside the orders of the Appellate Tribunal and the Assessment Order, remitting the matter back to the Assessing Officer for fresh consideration. The Assessing Officer was directed to provide the appellant with an opportunity to present all relevant documents supporting the treatment of the amount as a business loss. The decision allowed the appeal in part, indicating a need for reassessment based on proper documentation and reflection in the accounts.