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Issues Involved:
1. Whether the sum of Rs. 1,82,000 paid by the assessee for acquiring tenancy rights is allowable as a revenue expenditure. 2. Whether the assessee can claim deduction of an irrecoverable advance of Rs. 40,077 given by a firm taken over by the assessee company. Analysis of the Judgment: 1. Allowability of Rs. 1,82,000 as Revenue Expenditure: Facts and Contentions: - The assessee, a private limited company, purchased the business of M/s. Yusuf Ali Gulam Hussain Arsiwala for Rs. 2,17,000, with Rs. 1,82,000 allocated for goodwill and other rights, and Rs. 35,000 for fittings, furniture, and stock-in-trade. - The ITO disallowed the Rs. 1,82,000 as a revenue expenditure, viewing it as a capital expenditure for goodwill. - The assessee argued that the amount was actually for acquiring tenancy rights, essential for carrying on its business, and should be deductible. Tribunal's Findings: - The Tribunal emphasized that the terms of the contract are crucial unless proven otherwise. The onus was on the assessee to demonstrate that the payment was for tenancy rights and not for goodwill. - The Tribunal found no evidence to support the assessee's claim that the payment was for tenancy rights. The contract explicitly stated the payment was for goodwill and other rights. - The Tribunal rejected the assessee's argument that the real nature of the transaction should be considered over the written contract, citing the Supreme Court's decision in Guzdar Kajora Coal Mines Ltd. vs. CIT, which allows for such consideration only in cases of fraud or collusion, neither of which was proven here. - The Tribunal also noted that the assessee did not continue the vendor's business, did not use the vendor's name, and carried on its own business in the premises, which did not alter the nature of the contract. Legal Principles Applied: - The Tribunal referred to the Supreme Court's principle that the real nature of a transaction should be determined based on the facts and circumstances, but the explicit terms of the contract are generally binding unless proven otherwise. - The Tribunal also considered the enduring benefit principle, concluding that acquiring tenancy rights provided an enduring advantage, making the expenditure capital in nature. Conclusion: - The Tribunal upheld the CIT (A)'s decision that the Rs. 1,82,000 was not allowable as a revenue expenditure, as it was a capital expenditure for acquiring goodwill and other rights. 2. Deduction of Irrecoverable Advance of Rs. 40,077: Facts and Contentions: - The assessee claimed a deduction for an irrecoverable advance of Rs. 40,077 given by a firm taken over by the assessee company. - The ITO disallowed the claim, stating that the advance was made by the firm, not the assessee company. - The CIT (A) allowed the claim, relying on decisions from the Allahabad and Andhra Pradesh High Courts. Tribunal's Findings: - The Tribunal agreed with the CIT (A), stating that the decisions of the Allahabad High Court in T.N. Shah Pvt. Ltd. vs. Addl. CIT and the Andhra Pradesh High Court in CIT vs. T. Veerabhadra Rao, K. Koteswara Rao & Co. supported the assessee's claim. - The Tribunal rejected the Revenue's additional plea that the claim was not allowable under s. 36(2) as a bad debt, noting that this was not the basis of the CIT (A)'s decision and would require additional evidence. Legal Principles Applied: - The Tribunal upheld the principle that the successor entity can claim deductions for irrecoverable advances made by the predecessor entity, as supported by relevant High Court decisions. Conclusion: - The Tribunal dismissed the Revenue's appeal and upheld the CIT (A)'s decision allowing the deduction of the irrecoverable advance of Rs. 40,077. Final Decision: - Both the assessee's and the Revenue's appeals were dismissed. The sum of Rs. 1,82,000 was not allowable as a revenue expenditure, and the deduction of Rs. 40,077 as an irrecoverable advance was upheld.
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