TaxTMI 
TaxTMI 
2010 (11) TMI 960
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....ff which is contrary to the provisions of section 36 (2) of the Act. (ii) The learned CIT (A) has erred in deleting the disallowance of claim of capital advance of Rs. 7,76,000 as bad debt against the provisions of law and against the law laid down in the case of Hasimara Industries Ltd. v. CIT (1998) 231 ITR 842 . (iii) The learned CIT (A) has erred in deleting the disallowance of bonus paid to shareholders against the provisions of section 36 (1) (ii) of the Act. 3. The first and the second ground referred to above, relates to the issue of disallowance made by the Assessing Officer towards bad debts/irrecoverable balance written off. 3.1 The brief facts of the case are as follows:- The Assessing Officer, in the course of scrutiny a....
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....re the authorities below. 3.7 We have heard the rival submission and perused the material on record. In the instant case, the assessee had paid advance to suppliers for supply of accessories in the normal course of its business. However, when the accessories supplied were found to be defective or of substandard quality and not according to the specifications of the assessee, the same was returned to the suppliers. But these suppliers did not refund the advance paid to them and the amount could not be recovered as they have failed in the business or have closed shutters. In these circumstances, the amount advanced to them was written off as irrecoverable and the same was claimed as expenditure in the normal course of business under section ....
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....ble and has to be incurred by all businessmen in their business. All such expenditure is allowable under section 28 (i) of the IT Act. 3.12 Section 28 of the IT Act reads as under:- "Section 28 - The following income shall be chargeable to Income-tax under the head "Profit and gains of business or profession". (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) any compensation............" From the reading of the above provisions, it is very clear that what law envisages to tax is only the profits or gains of the business. In arriving at the profits or gains of the business, all legitimate and normal expenditure of the business are to be deducted un....
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....ital loss and hence, the amount could not be deducted from the assessee's income as business loss. 3.14 In the light of aforesaid reasons, we are of the view that the order of the CIT (A) is in accordance with law and no interference is called for. Hence, ground Nos.1 and 2 referred above, are dismissed. 4. As regards to third ground, the brief facts of the case are as follows:- A sum of Rs. 2,04,000 paid as bonus to the employees, who are also shareholders and promoters of the company, was disallowed by the Assessing Officer. According to Assessing Officer, section 36 (1) (ii) provided that deduction shall be allowed in computing the total income, in respect of any sum paid to an employee as bonus or commission for services rendered, wh....
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.... the claim of the assessee is against the provisions of section 36 (1) (ii) of the Act. 4.4 The learned AR reiterated the submission made before the Income-tax authorities. 4.5 We have heard the rival submission and perused the material on record. One of the conditions mentioned in section 36 (1) (ii) is that the amount payable to employees as bonus or commission should not otherwise have been payable to them as profit or dividend. The plain reading of the clause means that the profits of a business will not be allowed to be dwindled by merely describing the payment as bonus or commission, if the payment is in lieu of dividend or profits. This is provided to check the employer from avoiding tax by distributing his/its profits by way of bo....