30 November 2015
please provide some dates viz. date of expenditure date of closure of business date of case filed etc. period of defect liability, if any in the agreements.
Prima facie, if properly pleaded, the expenditure may be allowed.
Querist :
Anonymous
Querist :
Anonymous
(Querist)
30 November 2015
can i have some references of Judgements in this matter?
the case was filled in year 2001 & the exps is claimed in year 2013 & the business is also closed many years back
03 December 2015
Oh, interesting.... something NEW coming up. Please...
Just to make my understanding more clear and focused : The business for which the legal expenses incurred towards defending the quality of construction case, has been closed many years back. The expenses are claimed in 2013.
Please tell me if in the year 2013, the builder is running his business in some other name? May be proprietor or partner?
The rule is if the business is closed, one can NOT claim the expenditure in subsequent years. (AT the most what one can do is reopen the case at the time of closure of business and claim the same.)
Querist :
Anonymous
Querist :
Anonymous
(Querist)
03 December 2015
if that is the rule then tel me about the treatment of Baddebts recovered?
03 December 2015
See try to understand the difference between this BAD debt and Legal expenses.
In the case of Bad debt... the same has been claimed as allowable expenses when the business was in running state. Some portion of bad debts is recovered after the business is closed...(Please note the deduction/exp on bad debts is already allowed).... and hence the recovery is regarded as income. The character of income is same....Business income.
Legal expenses, as you are querying is on different footing. The same were not claimed either through PROVISION or otherwise when the business was running.
Querist :
Anonymous
Querist :
Anonymous
(Querist)
03 December 2015
Good Explanation Sir.
but though the exps is already claimed(Bad debt) , how one would claim it as the business is not in existance
04 December 2015
One can reopen the assessment of the year in which the bad debts were claimed as deduction. The revenue, in fact, is acting in assessee's favour by NOT reopening the assessment and treating it as the income in the year of receipt. So? Treating the recovered bad debt as income in the year of receipt is justified.
In fact that is regarded as CONSERVATISM. Therefore, as I said, had you provided the legal expenses in the year of closure or any earlier year either by way of provision or contingent liability, the same might have been allowed. But claiming the expenditure after the business is closed down is against CONSERVATISM.