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Often assessees make mistakes in making a choice of section under which a deduction is admissible and therefore prefer alternate claims under various sections. For instance advances written off whether claimable as bad debts u/s 36(1) (vii) or business loss u/s 28(i)/29. For claiming a deduction u/s 36(1) (vii) it is desired that the impugned amount of bad debt must have been taken into account in computing the income of the assessee in the previous year in which such debt is being written off or in an earlier previous year. But that would not be true in case of advances. In that case the right choice is claim for deduction as business loss under section 28(i)/29.

In one such instance the Delhi Bench of the ITAT in the case of Jhalani & Co. vs. Assistant Commissioner of Income-tax (77ITD44) in following the classic case of Badridas Daga v. CIT [1958] 34 ITR 10 SC, held that non-returning of advance given to an employee can be readily characterised as business loss and can be written off in the year of choice of the assessee. In this case the amount was written off after five years of leaving of such employee. All that is significant is that the amount must have been advanced to such employee during the course of his service.

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