1980 (5) TMI 50 - AT - Income Tax

Summary

Issues:
1. Disallowance of loss claimed by the assessee as deductible while computing income for the assessment year 1976-77.

Detailed Analysis:
The assessee, engaged in trucking business, contested the disallowance of a loss amounting to Rs. 9,500, contending it was deductible in computing income. The Income Tax Officer (ITO) held that the loss from chit fund contributions was not related to the business and thus not of revenue nature. The assessee appealed to the Appellate Assistant Commissioner (AAC), who upheld the ITO's decision.

Upon review, the Appellate Tribunal considered the submissions made by the assessee. The assessee explained that to finance a new truck purchase, they had to subscribe to chits of a finance company. The finance company later faced financial instability, prompting the assessee to settle the chit account prematurely, incurring a loss of Rs. 9,500. The Tribunal noted that the chit fund subscriptions were made solely for business reasons, aiming to secure the loan and safeguard the contributed amount due to the finance company's financial troubles.

The Tribunal found that both the ITO and AAC failed to grasp the business-oriented nature of the chit fund contributions and the subsequent loss suffered by the assessee. Citing relevant case laws, the Tribunal concluded that the loss of Rs. 9,500 was a business loss and thus deductible in computing the assessee's business income. Relying on precedents like Addl. CIT Madras vs. BMS (P) Ltd and CIT vs. Gannon Dunkerley & Co. Ltd, the Tribunal allowed the appeal, directing the deduction of the said loss from the income computed by the ITO.

In light of the above analysis, the Tribunal allowed the assessee's appeal, emphasizing the business-driven rationale behind the chit fund contributions and the resulting loss, ultimately deeming it an allowable business loss for deduction in income computation for the relevant assessment year.