2011 (9) TMI 1016 - AT - Income Tax

Summary

Issues Involved:
1. Year of allowability of loss due to embezzlement by employees.
2. Disallowance of making charges due to non-deduction of tax u/s 194C.

Summary:

1. Year of Allowability of Loss Due to Embezzlement by Employees:
The assessee-firm, engaged in the manufacture of gold jewellery and wholesaling of bullion, filed its return for AY 2007-08 declaring an income of Rs. 48,10,898/-. The Assessing Officer (AO) made an addition by disallowing a loss of Rs. 1,10,53,737/- claimed due to embezzlement by employees, arguing that the loss should be allowed in AY 2006-07. The AO's contention was based on the fact that the FIR was lodged on 8.4.2006 and the final report was filed on 23.5.2006. However, the CIT(A) accepted the assessee's claim that the loss was discovered in December 2006, relevant to AY 2007-08, and thus allowed the deduction. The Tribunal upheld the CIT(A)'s decision, noting that the loss was crystallized in December 2006 and the stock details as on 31.3.2006 were based on the stock book prepared by the embezzling employee, not on physical stock.

2. Disallowance of Making Charges Due to Non-Deduction of Tax u/s 194C:
The AO disallowed Rs. 12,52,682/- out of making charges paid, citing non-deduction of tax at source u/s 194C. The assessee argued that making charges should be treated as part of the purchase cost and not subject to TDS. The CIT(A) sustained the addition. However, the Tribunal, considering the peculiar circumstances and the decision in Attar Singh Gurumukh Singh vs ITO (191 ITR 667), held that no TDS was deductible on such payments. The Tribunal noted that when two possible views exist, the view favorable to the assessee should be taken, and thus deleted the addition.

Conclusion:
The appeal of the Revenue was dismissed, and the cross objection of the assessee was allowed. The Tribunal confirmed the CIT(A)'s decision regarding the allowability of the embezzlement loss in AY 2007-08 and deleted the addition related to making charges due to non-deduction of tax u/s 194C.