Trading loss deduction limited to actual expenditure incurred, with only forfeited security deposit allowed under tax law.

A trading-loss claim under the Income-tax Act, 1961 was confined to the actual expenditure incurred, because the assessee had not paid or recorded the balance amount as a book debit. The High Court held that only the forfeiture of the security deposit constituted deductible expenditure under section 37(1); the larger claimed amount did not meet the statutory requirement of expenditure actually incurred. Deduction was therefore restricted to the forfeited deposit alone, and no excess claim was allowable.

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Issues: Whether the amount of Rs. 2,29,524 claimed by the assessee as a trading loss was deductible in computing total income, or whether deduction was confined only to the amount of Rs. 50,772 forfeited from the security deposit.

Analysis: The liability arose from the minimum guarantee arrangement, but the actual expenditure incurred during the relevant accounting year was only the forfeiture of the security deposit. The balance amount was neither paid by the assessee nor shown as a debit in the books of account, and therefore did not satisfy the requirement of expenditure incurred for deduction under section 37(1) of the Income-tax Act, 1961.

Conclusion: The deduction was allowable only to the extent of Rs. 50,772 and the assessee was not entitled to deduction of any amount in excess thereof. The question was answered in favour of the Revenue to that extent.

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