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Business Losses Deductible under the head  ‘Profits and Gains of Business or Profession’

  1. Business Losses which are Deductible from Business Income

  2. Business Losses which are Not Deductible from Business Income

1. Following Losses are Deductible from Business Income

  1. Loss of stock-in-trade as a result of enemy action, or arising under similar circumstances.

  2. Loss of stock-in-trade due to destruction by an act of God.

  3. Loss arising on account of failure on the part of the assessee to accept delivery of goods.

  4. Depreciation in funds kept in foreign country for purchase of stock-in-trade.

  5. Loss due to exchange rate fluctuations of foreign currency held on revenue account.

  6. Loss arising from sale of securities held in the regular course of business.

  7. Loss of cash and securities in a banking company on account of dacoity (maybe after banking hours.) 8. Loss incurred on realisation of amount advanced in connection with business.

  8. Loss of security deposited for the purposes of acquisition of stock-in-trade.

  9. Loss due to forfeiture of a deposit made by the assessee for properly carrying out of contract for supply of commodities.

  10. Loss on account of embezzlement by an employee.

  11. Loss incurred due to theft or burglary in factory premises during or after working hours.

  12. Loss of precious stones or watches of a dealer while bringing them from business premises to his house.

  13. Loss arising from negligence or dishonesty of employees.

  14. Loss incurred on account of insolvency of banker with which current account is maintained by the assessee.

  15. Loss incurred due to freezing of the stock-in-trade by enemy action.

  16. Loss incurred by a sugar manufacturing company by foregoing advance made to sugarcane growers who used to sell sugarcane crop exclusively to the company.

  17. Loss on account of non-recovery of advances given by the assessee-company (engaged in the business of financing its subsidiaries) to its 100 per cent subsidiary company.

  18. Loss incurred by a holding company which has guaranteed a loan taken by its subsidiary company.

  19. Loss arising as a result of seizure and confiscation of illegal stock-in-trade is allowable as a business loss against income from illegal business—

  20. Loss arising as a result of rejection of goods by the importer (as goods are unfit for human consumption).

2. Following Losses are Not Deductible from Business Income

  1. Loss which is not incidental to trade or profession, carried on by the assessee.

  2. Loss incurred due to damage, destruction, etc., of capital assets.

  3. Loss incurred due to sale of shares held as investment.

  4. Loss of advances made for setting up of a new business which ultimately could not be started.

  5. Depreciation of funds kept in foreign currency for capital purposes.

  6. Loss arising from non-recovery of tax paid by an agent on behalf of the non-resident.

  7. Anticipated future losses.

  8. Provision made by assessee in respect of non-performing assets.

  9. Loss relating to any business or profession discontinued before the commencement of previous year.


Topics...on ‘Profits and Gains of Business or Profession’

Define … ‘Profits and Gains of Business or Profession’ and its Computation (Section 28)
Method of Accounting for Computing Business Income (Section 145)
Principles for Allowing Business Deductions / Allowances from Profits and Gains of Business or Profession.
Expenses Allowed as Deductions against Profits and Gains of Business or Profession [Section-30-37]
[Section 37(1)] : General Or Allowable Deductions under Business or Professions
Business Losses Deductible under the head  'Profits and Gains of Business or Profession'.
Expenses Not Deductible under the head 'Profits and Gains of Business or Profession (Section 40, 40A, 43B)
DEEMED PROFITS Chargeable to Tax as Business Income Under Profits and Gains of Business or Professions [Section 41]
Taxation of Undisclosed Business Income/Investments from Undisclosed Sources
Deduction in respect of Expenditure incurred on setting up of a Specified Business [Section-35AD] :
When Maintenance of Books of Accounts becomes Compulsory (Section 44AA)
Compulsory Audit of Books of Accounts by Chartered Accountant (Section 44AB)
Computation of Income On Estimated Basis Under Sections 44AD, 44ADA and 44AE

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