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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 ..... er book and from the perusal of the orders of the lower authorities, there is no clear finding given with regard to the fact as to whether profit element has been loaded by C&F Agent in his bills seeking reimbursement of expenses. We find that this finding is very crucial to decide the impugned issue before us. We hold that no tax needs to be deducted u/s. 194C of the Act for the reimbursement portion. In the facts and circumstances of the case, we deem it fit and appropriate in the interest of justice and fair play to set aside this issue to the file of the Ld. AO to give a clear finding from the verification of the bills as to whether any profit element is loaded by the C&F Agent while seeking reimbursement of expenses from the assessee. The assessee is also directed to adduce adequate cooperation and produce evidences in support of his contentions. - Decided in favour of assessee for statistical purposes. Disallowance of sales promotion expenses - Held that:- We find that incurrence of these expenses by the assessee are in the normal course of business and adequate evidences were also submitted in this regard. In any case, there cannot be any addition made by the lower author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the learned Commissioner of Income-tax (Appeals) erred in law in upholding the disallowance of bad debts amounting to ₹ 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 the debts were written off as irrecoverable in the books and reflected to profit and loss accounts. 2. For that in view of the fact that a part of the debts arisen out of incident to the trade which caused reduction of circulating fund became bad and was not receivable, the claim of the appellant as bad debt out of such sum ought to have been allowed by the learned Commissioner of Income-tax (Appeals) in consideration of the arguments adduced to him. 4. We have heard rival submissions and perused the material available on record including the paper book filed by the assessee. We find that the breakup of the claim of bad debts and advances is enclosed in pages 27 and 28 of the paper book together with supporting evidences from pages 29 to 36 of the paper book. From the same it could be safely concluded that in respect of first three parties as stated supra, the assessee had paid tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is opt to consider a loss as amounting to a loss of business. But this is not true of all losses, because losses in the running of the business cannot be said to be of capital. The questions to consider in this connection are: for what purpose was the money laid out? Was it to acquire an asset of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business? If money be lost in the first circumstances, it is a loss of capital, but if lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted 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 claim for deduction as business loss. This is particularly so, as there is no bar in claiming a loss as a business loss, if the same is incidental to carrying on of a business. The fact that condition of bad debts were not satisfied by the assessee would not prevent him from claiming deduction as a business loss incurred in the course of carrying on business as share broker. [Para 11] In fact, the Bombay High Court in the case of CIT v. R.B. Rungta Co. [1963] 50 ITR 233 upheld the finding of the Tribunal that the loss could be allowed on general principles governing computation of profits under section 10 of the Indian Income-tax Act, 1922, which is similar/identical to section 28 of the 1961 Act. The revenue in that case urged that the assessee having claimed deduction as a bad debt the benefit of the general principle of law that all e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 portion paid to the said C F Agent and made disallowance u/s. 40(a)(ia) of the Act, which was upheld by the Ld. CIT(A). Aggrieved, the assessee is in appeal before us on the following ground: 3. For that the Ld. CIT(A) was not justified in confirming the disallowance of ₹ 9,23,328/- being the expenditure incurred by the appellant and the payment made to the clearing agent as reimbursement of expenses which were disallowed by the Ld. AO in application of the provisions of sections 40(a)(ia) and 194C of the said Act wrongfully and incorrectly. 8. We have heard rival submissions and perused the material available on record. We find that the Ld. AR drew our attention to page 37 of the paper book, which contains the details of entire reimbursement of expenses together with its supporting bills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld 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 ₹ 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 arguments placed before him. 10. We have heard rival submissions and perused the material available on record. We find that the assessee had incurred this expenditure in the normal course of business towards sales promotion and he had also produced purchase bills for the material which were in turn gifted to various parties for increasing the turnover of the assessee. It is not in dispute that the turnover and net profit of the assessee during the year had increased substantially, which is evident from the chart reproduced hereinbelow: Asst. Year Turnover Rs. Sales Promotion Expenses Rs. Gross Profit Rs. Net Profit Rs. 2008-09 2007-08 2006-07 4,12, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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