2017 (12) TMI 187 - AT - Income Tax

Disallowance of Bid Loss Claimed in the computation of total income - Held that - Bid Loss incurred on account of lifting the chit in the capacity of subscriber to chit is allowable in full in the year in which the chit was auctioned. Apex Court in the case of Taparia Tools Ltd., JCIT 2015 (3) TMI 853 - SUPREME COURT finally concluded that assessee is entitled to the deduction of the entire expenditure in the year in which the amount was actually paid. - Decided against revenue

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Deletion of disallowance of Bid Loss claimed in the computation of total income.
3. Applicability of Section 145(1) of the I.T. Act, Board's Notification No.SO 69(E), and Accounting Standard AS 22.

Issue-Wise Detailed Analysis:

1. Legality of the CIT(A)'s Order:
The Revenue contended that the order of the CIT(A) was opposed to law and the facts and circumstances of the case. The Tribunal examined the orders of the lower authorities and the judgments referred to by the parties. It was found that the identical issue was previously raised and adjudicated by the Tribunal in favor of the assessee, following various judicial pronouncements of different High Courts and the Apex Court.

2. Deletion of Disallowance of Bid Loss:
The primary issue was whether the Bid Loss incurred on account of lifting the chit in the capacity of a subscriber to the chit is allowable in full in the year in which the chit was auctioned. The Tribunal noted that the loss represents the difference between the face value of the chit and the bid value, which was claimed as a loss in the computation of total income. The AO opined that this loss should be apportioned over the period of the chit. However, the Tribunal referenced the judgment of the Madras High Court in M/s Bilahari Investments Pvt. Ltd. Vs. CIT, which allowed the loss as a business loss in the year it occurred. The Tribunal also referenced the Supreme Court’s decision in Taparia Tools Ltd. Vs. JCIT, which held that revenue expenditure incurred in a particular year should be allowed in that year unless the assessee opts for a spread over, which was not the case here.

3. Applicability of Section 145(1) of the I.T. Act, Board's Notification No.SO 69(E), and Accounting Standard AS 22:
The Tribunal discussed the applicability of Section 145(1) of the I.T. Act and noted that income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The Tribunal found that the assessee was following the mercantile system of accounting, and therefore, the income or loss of the assessee accruing during the relevant accounting year had to be considered for the purpose of income-tax assessment. The Tribunal also noted that the provisions of the Chit Funds Act require the prized subscriber to furnish security for future installments, and thus, the discount is allowable in the year of accrual.

Conclusion:
The Tribunal concluded that the Bid Loss incurred on account of lifting the chit in the capacity of a subscriber to the chit is allowable in full in the year in which the chit was auctioned. The Tribunal dismissed the appeals filed by the Revenue, confirming the order of the CIT(A) as it was in consonance with the judgments of the High Court and Apex Court.

Final Judgment:
The appeal of the Revenue was dismissed, and the order of the CIT(A) was confirmed. The judgment was pronounced in the open court on 28th November 2017.

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