1999 (5) TMI 22 - HC - Income Tax

Summary

Issues:
1. Rejection of revision under section 264 of the Income-tax Act regarding embezzlement loss.
2. Disallowance of carrying forward embezzlement losses from previous years.
3. Interpretation of circulars and Supreme Court decisions regarding embezzlement losses for income-tax assessments.
4. Maintainability of revision petition by the Commissioner of Income-tax.

Analysis:

1. The petitioner challenged the rejection of the revision under section 264 of the Income-tax Act by the Commissioner of Income-tax, based on the disallowance of the amount of Rs. 5,00,913 in respect of embezzlement loss relating to an earlier year in the assessment year 1986-87. The petitioner argued that the entire loss should have been allowed in the assessment year when it was detected, i.e., 1984, as it was irrecoverable. The Income-tax Officer only allowed a deduction of Rs. 28,025 for the year ending June 30, 1985. The Tribunal found the deduction correct for the year 1986-87, but the Commissioner's rejection was contrary to the Supreme Court's view on embezzlement losses being deductible when discovered.

2. The Assistant Commissioner disallowed the carrying forward of embezzlement losses from previous years, which was revised by the Commissioner under section 263. The Tribunal upheld the deduction for the year 1986-87 but the Commissioner's order was challenged. The petitioner contended that the loss was detected in 1984, and the entire loss should have been allowed in that year itself. The Commissioner's decision to disallow the loss from previous years in 1986-87 was found unjustified, as the loss was claimed in the returns for 1986-87.

3. The petitioner relied on Circulars and Supreme Court decisions regarding embezzlement losses for income-tax assessments. Circular No. 35-D of 1965 emphasized that losses due to embezzlement should be allowed as a deduction when discovered, as affirmed by Supreme Court cases like Badridas Daga v. CIT and Associated Banking Corpn. of India Ltd. v. CIT. Circular No. 14 of 1955 highlighted the duty of tax officers to assist taxpayers in claiming reliefs they are entitled to, preventing taking advantage of taxpayer ignorance.

4. The judgment raised the issue of the maintainability of the revision petition by the Commissioner of Income-tax. The Commissioner's order was set aside as it was found contrary to the Supreme Court's view on embezzlement losses. The Court directed the Commissioner to reconsider the matter, including the maintainability of the revision, and pass appropriate orders in accordance with the law. The writ petition was disposed of accordingly, emphasizing the need for a fresh examination of the entire issue.