2003 (4) TMI 67 - HC - Income Tax

(i) Whether, on the facts and circumstances of this case, the Tribunal erred in holding that an amount of Rs. 2,63,816 claimed by the assessee by way of deduction on account of business loss was not allowable? - (ii) Whether, on the facts, the Tribunal erred in holding that the assessee had not proved the factum of embezzlement? - we answer both the above questions in the negative, i.e., in favour of the Department and against the assessee.

Summary

Issues:
1. Whether the claimed deduction on account of business loss was allowable.
2. Whether the factum of embezzlement was proven.

Analysis:

Issue 1: Deduction of Business Loss
The assessee, a chemical dealer, declared a total loss for the relevant year and claimed a deduction of Rs. 2,63,816 due to embezzlement of cash by an employee. The Tribunal disallowed the deduction, leading to this appeal. The advocate for the assessee argued that the Tribunal overlooked a draft report by the chartered accountant seized during a search, indicating the embezzlement was detected before the search. However, the court found no evidence presented by the assessee regarding the date of detection of embezzlement or the circumstances leading to it. The court noted discrepancies in the evidence, such as the lack of a domestic inquiry against the accused employee and the absence of relevant documents supporting the claim. Consequently, the court upheld the Tribunal's decision, stating that the factum of embezzlement was not proven by the assessee.

Issue 2: Proof of Embezzlement
The court emphasized the lack of substantial evidence provided by the assessee to establish the factum of embezzlement. Despite the advocate's arguments and reliance on an affidavit and a legal opinion, the court found the evidence insufficient. The court highlighted the absence of crucial documents, like a termination letter, police complaint, or notice of termination, to support the claim of embezzlement. Additionally, discrepancies in the affidavit of the accused employee raised doubts about the authenticity of the claimed amount. The court held that the burden of proof rested on the assessee, and the failure to produce essential documents and conduct a domestic inquiry weakened the case. Consequently, the court upheld the Tribunal's decision to disallow the deduction for business loss due to unproven embezzlement.

Conclusion:
The court ruled against the assessee on both issues, denying the claimed deduction for business loss and affirming that the factum of embezzlement was not adequately proven. As a result, the appeal was dismissed, and no costs were awarded. The court found no grounds to interfere with the Tribunal's factual findings and concluded the judgment accordingly.