One of the assessees paid transport contract amount without deducting TDS.However he remitted TDS to central government account out of his own funds by debiting the transport expenses. On perusal of ledger account of transport expenses ,the above fact of inflation of expenses by TDS amount came to the notice. Whether the TDS liability included in the transport expenses is an allowable expenditure while computing the income under the head ” Profits and gains of business”.

Section 14A of the I T. Act is regarding disallowance of expenditure incurred on the income which is exempt from tax . The bone of contention between taxpayer and income tax department is mainly on the issue of expense on earning of dividend income . While the assessee claims that no expenditure was incurred for earning tax free dividend income, whereas the Assessing Officer apportion the total expense debited in P & L account in the proportion of total income . The government later on notified the Rule 8D for computation of such disallowance u/s 14A

Therefore, one can say that in every case where the expenditure on sales promotions, advertisements etc are made and no capital asset is generated out of it , in that case even if the assessee has amortized the expense over a number of years, expense can be claimed as fully allowable expense in the year in which it is actually incurred.

The issue is whether accounting treatment of a particular item of income or expenditure in its books of account decide whether the same can be treated as income or expenditure. For example , an assessee can treat an expenditure as revenue in nature and debits its P & L account . Whether his treatment as expenditure is final for computing his income.

Any expenditure incurred wholly and exclusively for the business is alloowable expenditure u/s 37 of the I.T.Act. The premium paid on insurance policy on any employee life is also allowable expenditure. The insurance company sells Keyman insurance policy which basically means as per Explanation to section 10(10D) as under

Archived; click post to view. Excerpt: Section 72(2) of the I T Act provides order in which lossses can be adjusted. It is provided that the business loss should be set off before setting off unabsorbed deprecation and so on. It is also provided that carried forward business loss will be set off against business [...]