Section 29

Section 29 — the law in short

What the courts have decided on section 29, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Woodward Governor India P Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  I restated my foreign currency creditors at the closing rate and debited an unrealised loss. Can the AO throw it out as a contingent liability?
  No. Under the mercantile system, the loss on restating foreign currency monetary items at the balance sheet date is an item of expenditure under s.37(1), and the word 'expenditure' is wide enough to cover a loss that has not gone out of the assessee's pocket. Section 43A is a separate regime that applies only to an asset acquired from a country outside India, and after its substitution by the Finance Act 2002 it operates only at the time of actual payment.
• CIT v Mahendra Mills Supreme CourtHelps taxpayer
  I did not claim depreciation in my return because it suits me not to. Can the assessing officer force it on me anyway?
  No, on the law as it then stood. The Supreme Court held that where the assessee neither claims depreciation nor furnishes the prescribed particulars, the Income-tax Officer cannot thrust the allowance on him. Section 32 allows depreciation subject to section 34, and section 34 permits the deduction only if the prescribed particulars are furnished. Section 29 is not a complete code and must be read with section 34. Depreciation is a benefit for the assessee; a privilege cannot be turned into a disadvantage and an option cannot become an obligation. The Revenue's appeal was dismissed.
• Badridas Daga v CIT Supreme CourtHelps taxpayer
  My employee embezzled money from the business bank account. Can I write that off for tax?
  Yes, as a trading loss, provided the loss springs from the way the business is carried on. The Court refused the claim as a bad debt and refused it as expenditure, and then allowed it under the charging provision itself, because profits of a business cannot be computed without taking account of losses incidental to that business. The route matters: this is a deduction in computing profits, not an item of expenditure under s.37(1).
• CIT v Gian Chand Labour Contractors High CourtHelps department
  The officer rejected my books and applied a flat net profit rate. Can I still claim my freight and other expenses separately?
  No. Once the books are rejected and income is estimated by applying a net profit rate, that rate is taken to have already absorbed every deduction that would otherwise be computed under sections 30 to 43A. You cannot have the estimate and the expenses too.
• Indwell Constructions v CIT High CourtHelps taxpayer
  The officer rejected my firm's books and estimated the profit. Can he then also add back the interest and remuneration the firm paid its partners?
  No. Once the books are rejected and the profit is estimated, the estimate stands in substitution for a computation under s.29, and every deduction that s.29 brings in is deemed to have been taken into account in arriving at it. The Court added that the embargo in s.40 is taken into account in the same way. To add back one specific item out of the profit and loss account is to rely on the very books that have been rejected, which the officer cannot do. The separate addition of Rs 63,859 for interest and remuneration paid to partners was held not permissible, and the reference was answered in the negative and in favour of the assessee. Read the reasoning carefully before relying on it, because it cuts both ways: the same sentence that stops the Revenue adding an item back is the sentence the Revenue uses to resist a further deduction claimed on top of an estimate.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.