ITAT: Deduction Allowed on Loss Incurred Against Chit Fund Money Used in Business

ITAT: Deduction Allowed on Loss Incurred Against Chit Fund Money Used in Business

The Income Tax Appellate Tribunal (ITAT), Delhi by its division member bench of Anubhav Sharma (Judicial Member) and N.K. Billaiya (Accountant Member) observed that loss on account of Chit fund has to be allowed as a deduction, however, subject to satisfaction that the Chit Fund money is utilized for the purpose of business.

The brief background of the case was that the appellant/assessee- Nijhawan Travel Services Pvt. Ltd claimed to be engaged in the business of running of stores and selling of branded items like ‘Adidas,’ ‘Benetton’ and other brands.

The assessee had declared a total income of Rs. Nil after adjusting the brought forward business loss with the current year income. The Assessing Officer (AO) had made disallowance on account of advances return and loss from Chit Fund and the Commissioner of Income Tax (Appeals) [CIT(A)] had sustained the same.

The ITAT while referring to the CBDT Circular no. 1175 of 16.05.1978 wherein it was directed that the members of Chit fund who get the money earlier from the chit will necessarily have to contribute more which means they incur loss which is nothing but interest taken for money as an advance.

In this regard, the bench observed, “Certainly, in the light of aforesaid instructions of the Board loss on account of Chit fund has to be allowed however, subject to satisfaction that the Chit Fund money is utilized for the purpose of business.”

The ITAT ordered the restoration of the issue to the files of the AO to inquire the use of Chit Fund money for business purposes and accordingly, allow it as a business expenditure.