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TMI Blog2016 (5) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... receive the materials and services in full, from the said parties and accordingly, chose to write off those bad advances and claimed the same as deduction in the return of income. Before the Ld. AO the assessee provided the breakup of his claim of bad debts and advances of Rs. 4,89,356/- as below: "JAF FZE (Dubai) Rs. 1,32,040/- O. V. IMPEX (Delhi) Rs. 2,08,505/- Shroff Shipping Agency Pvt. Ltd. Rs. 35,468/- Total advance for materials and services : Rs. 3,76,013/- + Bajaj Glass Centre (Bad debts written off) Rs. 1,13,343/- Total : Rs. 4,89,356/-" The Ld. AO observed that assessee could not establish as to how the aforesaid debts and advances had become bad. Hence, he proceeded to disallow the entire claim of Rs. 4,89,356/- in the assessment which was upheld by the ld. CIT(A) on first appeal. Aggrieved, assessee is in appeal before us on the following grounds: "1. For that the learned Commissioner of Income-tax (Appeals) erred in law in upholding the disallowance of bad debts amounting to Rs. 4,89,356/- claimed by the appellant u/s. 36(l)(vii) of the said Act on misconception of facts as well as law and without taking into consideration of the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k place at the harvest season each year, in preparation for the next crop. In the year 1948-49, due to drought, the assessee company could not work its sugar mills and the sugarcane growers could not grow or deliver the sugarcane. The advances made in 1948-49 thus remained unrecovered, because they could only be recovered by the supply of sugarcane to the assessee-company. The Mysore Government realising the hardship appointed a Committee to investigate the matter and to make a report and recommendations. The Committee recommended that the assessee-company should ex gratia forgo some of its dues, and in the year of account ending 30-6-1952, the company waived its rights in respect of Rs. 2,87,422. The company claimed this as a deduction under section 10(2)(xv) of 1922 Act. The ITO declined to make the deduction, because, in his opinion, this was neither a trade debt nor even a bad debt but an ex gratia payment almost like a gift. An appeal to the AAC also failed. The Appellate Tribunal upheld the disallowance. On reference the High Court held that the expenditure was not in the nature of a capital expenditure, and was deductible as a revenue expenditure. Held: To find out whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion precedent as provided under section 36(2), could the same be considered as an allowable business loss? * Whether, therefore, the amount of Rs. 44.98 lakhs could be considered as an allowable business loss? Held: * Section 28 imposes a charge on the profits or gains of business or profession. The expression 'Profits and gains of business or profession' is to be understood in its ordinary commercial meaning and the same does not mean total receipts. What has to brought to tax is the net amount earned by carrying on a profession or a business which necessarily requires deducting expenses and losses incurred in carrying on business or profession. The Supreme Court in the case of Badridas Daga v. CIT [1958] 34 ITR 10 has held that in assessing the amount of profits and gains liable to tax, one must necessarily have regard to the accepted commercial practice that deduction of such expenses and losses is to be allowed, if it arises in carrying on business and is incidental to it. [Para 10] * On the basis of the aforesaid decision, it can be concluded that even if the deduction is not allowable as bad debts, the Tribunal ought to have considered the assessee's clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled for the same as deduction u/s. 36(1)(vii) of the Act read with section 36(2) of the Act. Accordingly, ground nos. 1 and 2 raised by assessee are allowed. 6. The next issue to be decided in this appeal is as to whether the AO is justified in disallowing the C&F charges of Rs. 9,23,328/- by invoking the provisions of section 40(a)(ia) of the Act read with section 194C of the Act in the facts and circumstances of the case. 7. Brief facts of this issue are that the assessee is engaged in the business of import of timber and PVC Flex and selling them. For the purpose of his business, the assessee had to engage the services of Dura International Services as his clearing agent. The said C&F Agent incurred expenses on behalf of the assessee while clearing the goods for which bills were raised on the assessee and the said C&F Agent also raised separate bills for his service charges on the assessee. The Ld. AO observed that since both the services were rendered by the same party tax has to be deducted u/s. 194C of the Act on the gross amount paid to the said C&F Agent by the assessee. Accordingly, he observed that the assessee has to deduct tax at source even on the reimbursement p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences in support of his contentions. Accordingly, ground no. 3 raised by assessee is allowed for statistical purposes. 9. The next ground to be decided in this appeal is as to whether disallowance of sales promotion expenses in the sum of Rs. 2,86,466/- could be made in the facts and circumstances of the case. During the course of assessment proceedings, the Ld. AO called for the details of sales promotion expenses and in response to that the assessee produced purchase bills of material purchased which were distributed to various customers for the purpose of increasing the turnover of the assessee. The Ld. AO, however, not convinced sought to disallow 10% of the total sales promotion expenses and made disallowance of Rs. 2,86,466/- in the assessment on estimated basis which was upheld by the Ld. CIT(A) on first appeal. Aggrieved, assessee is in appeal before us on the following ground: "4. For that having regard to the facts that the expenditure of Rs. 2,86,466/- claimed by the appellant as sales promotion expenses for the purpose of business wholly and exclusively, the Ld. CIT(A) was wrong in confirming the disallowance of the same without taking into consideration of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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