Business loss on irrecoverable website development advances allowed where bad debt conditions were not satisfied.

Advances made for website development that became irrecoverable after the project was abandoned were not allowable as bad debt because the amounts had not been taken into account in computing income and the statutory conditions for that deduction were not met. The alternative plea of business loss was nevertheless supportable under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, since no further facts were required and the appeal covered the whole controversy. Website development expenditure was treated as revenue in nature because a website supports day-to-day business and needs constant updating, so the irrecoverable advances were incidental to business and allowable as business loss.

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Issues: Whether advances made for website development, which became irrecoverable when the project was abandoned, were allowable as a business loss notwithstanding that the claim as bad debt did not satisfy the statutory conditions.

Analysis: The advances were made for developing websites for the assessee's business, and the projects did not materialise. The Court held that the amounts were not allowable as bad debt because they had not been taken into account in computing income and the conditions for deduction as bad debt were not satisfied. However, the assessee was permitted to support the appellate order on the alternative ground of business loss under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, because no further facts were required and the subject-matter of the appeal covered the entire controversy. On merits, the Court found that website development expenditure would have been revenue in nature, as a website serves the day-to-day running of business and requires constant updating; therefore, when the project failed and the advances became irrecoverable, the loss was incidental to the business.

Conclusion: The assessee's claim was allowable as business loss under section 28 of the Income-tax Act, 1961, and the departmental appeal was dismissed.

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