2014 (11) TMI 1234 - HC - Income Tax

Disallowance of loss incidental to business as allowable u/s. 28 - whether provision of section 37(1) of the Income-Tax Act, 1961 cannot override the provision of section 28? - HELD THAT - As decided in BIPINCHANDRA K. BHATIA VERSUS DY. CIT. 2014 (10) TMI 793 - GUJARAT HIGH COURT as relying on case of Dr. TA Quereshi 2006 (12) TMI 91 - Supreme Court loss which was incurred during the course of business even if the same is illegal is required to be compensated and for the loss suffered by the assessee Decided in favour of assessee.

Summary

Issues:
Challenge to judgment and order passed by Income Tax Appellate Tribunal for assessment year 1994-95.
Interpretation of provisions of Income Tax Act regarding allowable business losses and deductions.
Discrepancies in assessing undisclosed income and disallowances made by tax authorities.

Analysis:
The appellant challenged the judgment and order passed by the Income Tax Appellate Tribunal for the assessment year 1994-95. The main issue revolved around the interpretation of provisions of the Income Tax Act concerning allowable business losses. The appellant contended that the loss incidental to business should be allowed under section 28, and section 37(1) cannot override this provision. The Tribunal dismissed the appeal by disregarding the appellant's contentions on facts and law.

Another issue arose in a related Tax Appeal where a search was conducted on the appellant dealing in bullion and gold jewellery. The Assessing Officer made additions and disallowances, including a claim for deduction of gold seized by the Customs Authorities. The appellant's appeals before the CIT (Appeals) and the Tribunal were dismissed. The appellant argued that the claimed deduction was a legitimate business expenditure under the Income Tax Act. Citing a precedent, the appellant sought compensation for the losses incurred during the course of business, even if they were illegal.

In a separate judgment related to another Tax Appeal, the Court considered similar issues and decided in favor of the assessee, emphasizing the compensatory nature of business losses. The Court ruled in favor of the appellant and against the revenue, allowing the appeal. The decision was based on the principle that losses incurred during the course of business, even if illegal, must be compensated. The judgment highlighted the need to answer the appeal in favor of the assessee based on the precedent set by the Supreme Court. The Court allowed the appeal, aligning with the decision in the related case.

In conclusion, both judgments emphasized the importance of compensating business losses and deductions legitimately claimed under the Income Tax Act. The decisions underscored the need to consider the circumstances of each case and interpret the relevant provisions of the law to ensure fair treatment of taxpayers.