9911796707
|
Home
Issues: Appeal against disallowance of deduction for chitty loss in the assessment year 1977-78.
Analysis: 1. The revenue objected to the finding of the AAC that an amount of Rs. 35,929 is admissible deduction as claimed by the assessee for the chitty loss. 2. The assessee, a registered firm running a boarding house, subscribed to two chitties and bid an aggregate amount of Rs. 1,42,500 in 1973, which was introduced in the business. The premises were taken on rent with a returnable interest-free deposit of Rs. 1,00,000. Part of the chitty money was used for this purpose, and the total payments exceeded the bid amount by Rs. 35,929. 3. The ITO disallowed the claim, considering the payment for acquiring the right to conduct business as of a capital nature. The assessee argued that the amount should be allowed as a deduction, similar to interest on borrowed capital. 4. The AAC upheld the claim, stating that the payment of Rs. 1,00,000 was necessary to acquire the right to conduct business. The chitty loss was allowable only on termination, and the excess payment was a business expenditure. 5. The Revenue contended that there was no direct nexus between the business and chitty loss, and it was not for financing the business. The assessee argued that the chitty money was utilized for business purposes, including the deposit with the landlord. 6. The Tribunal found that the chitty money was used for the interest-free deposit, and the excess payment was a business expenditure for raising funds. It confirmed the AAC's decision, stating that even if not strictly interest on borrowings, it was allowable as business expenditure under section 37 of the IT Act. 7. The appeal against the disallowance of the deduction for chitty loss was dismissed.
|
