Section 37 of Income Tax Act, 1961— In the instant case, AO noted that the assessee has debited an amount of Rs. 20,28,200/- on account on chit discount in the P&L account.

The AO asked the assessee to show cause as to why these amounts should not be treated as expense of capital nature. The assessee made submission before the AO and AO was not satisfied and he made the additions.

Held that—we feel it proper to restore back the matter to the file of ld. CIT(A) for fresh decision after examining these additional evidences and if the assessee is able to establish that the money raised through chit was utilized for the purpose of business, then the loss incurred in the chits being net of chit discount (-) chit dividend should be allowed as revenue expenditure. Even if the assessee is not able to establish that the money raised through chit was used for business purpose then also, disallowance should be of net amount of chit discount (-) chit dividend and not of gross amount of chit discount. The ld. CIT(A) should pass necessary order as per law as per above discussion after providing reasonable opportunity of being heard to both sides. His order should be a speaking and reasoned order.[M/S. INDUS STEELS AND ALLOYS LTD. VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE – 3 (1) (1) , BANGALORE.][2019] 17 ITCD Online (28) [ITAT BANGALORE]