Tuesday, July 25, 2017

Compensation paid to clients due to negligence of employees was allowable as business exp.


a) Assessee was engaged in Marketing of Financial products of various companies as distributor. He claimed Rs.1.54 lakh as expenses in its profit and loss account on account of compensation paid to clients for loses occurred due to negligence of on the part of its employees.

b) Assessing officer (AO) held that assessee had not been able to prove as to how the loss was payable by it as the losses were suffered by the clients and, therefore, assessee was not entitled to claim such losses its profit and loss account.

c) CIT (Appeals) also upheld order of AO. Aggrieved-assessee field the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1) Assessee had claimed that the losses which had occurred to its clients due to negligence of employees as the employees of assessee could not square off the positions taken by clients in NIFTY index of National Stock Exchange.

2) Amount paid to these clients was necessarily an exp. which was allowable under section 37 as section 37 clearly states that any expenditure not in the nature of capital expenditure or personal expense laid out or expenditure wholly and exclusively incurred for the purposes of business or profession shall be allowed.

3) Moreover Circular no. 35-DCXLVII-20 of 1965 dated 24-11-1965, clearly states that losses arising due to negligence of employees has to be allowed as expense if loss took place in normal course of business

4) In the instant case, the losses were necessarily incurred in the normal course of business of assessee and therefore, the expenditure was allowable. - [2017] 83 taxmann.com 230 (Amritsar - Trib.)

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