2011 (5) TMI 206 - HC - Income Tax

Deduction - Theft - Shortfall in the quantity of raw materials - Whether the Tribunal was justified in holding that the assessee was not entitled to deduction in respect of the sum incurred by it for making good the shortfall in the materials required to be returned to customer - There was no justification for the Tribunal to disbelieve the allegation of theft from the materials on record - Gone through the records and are of the opinion, that no contrary materials have been placed to justify the finding that the allegation of theft was a concocted one - There is no finding either of the Police or of the Insurance Company brought on record to disbelieve the allegation of theft - The fact that the police could not recover the goods or that the guilty persons were not punished cannot go against the claim of the assessee because for the in ability of the police to recover the stolen goods or to find out the culprit, the assessee cannot suffer - It is not a case where the report of the police is that the allegation of theft is baseless - therefore, set aside the finding of the Tribunal - Decided in favor of the assessee

Summary

Issues:
Claim for deduction of Rs. 4,57,777 incurred by the assessee for making good the shortfall in materials required to be returned to Larsen & Toubro Ltd.

Analysis:
The appeal before the Calcutta High Court involved an assessee challenging an order passed by the Income-tax Appellate Tribunal regarding a deduction claim of Rs. 4,57,777 for materials lost due to theft. The assessee, a private limited company, operated on a job-work basis with Larsen & Toubro Ltd., fabricating iron and steel structurals. The theft of raw materials at the assessee's factory led to financial losses, prompting the assessee to make purchases to compensate for the shortfall. The Assessing Officer initially disallowed the deduction claim, questioning the genuineness of the theft. However, the Commissioner of Income-tax (Appeals) directed a reexamination, leading to the allowance of the entire amount by the Assessing Officer.

The Tribunal, on appeal by the Revenue, reversed the Commissioner's decision, citing the modus operandi of the assessee in previous years as a basis for disbelief. The High Court found this reasoning to be a perverse finding not supported by evidence but based on conjecture. The Court emphasized that past incidents of theft being genuine in previous years did not justify dismissing the current claim as fabricated. The absence of contrary evidence and lack of findings from the police or insurance company to discredit the theft allegation supported the assessee's claim. The Court concluded that the Tribunal erred in disbelieving the theft allegation and reinstated the Commissioner's decision, directing the Assessing Officer to act accordingly.

The Court highlighted the Assessing Officer's failure to provide a definite finding based on the preponderance of probability to reject the claim, emphasizing the need for substantial evidence to disprove the theft allegation. The judgment favored the assessee, allowing the deduction claim and rejecting the Tribunal's decision, ultimately ruling in favor of the assessee against the Revenue.