1990 (8) TMI 175 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of trading loss due to embezzlement.
2. Timing of the deduction for the embezzled amount.
3. Double deduction of the same embezzled amount.
4. Condonation of delay in filing appeals.

Issue-wise Detailed Analysis:

1. Allowability of Trading Loss Due to Embezzlement:
The assessee-firm, engaged in selling LPG cylinders and accessories, suffered a loss of Rs. 1,92,119 due to embezzlement by its cashier-cum-accountant, Sri Kiran K. Shah. The misappropriated amounts were discovered over three assessment years: 1979-80, 1980-81, and 1981-82. The Income Tax Officer (ITO) initially disallowed the claims on the grounds that the employee was not properly proceeded against, the claim was premature, and the loss was not debited to the profit and loss account. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the entire embezzled amount as a trading loss in the assessment year 1981-82, citing the Supreme Court decision in Associated Banking Corpn. of India Ltd. v. CIT and directed the ITO to allow the entire embezzled amount of Rs. 1,92,119 in the assessment year 1981-82.

2. Timing of the Deduction for the Embezzled Amount:
The CIT(A) held that the loss should be considered in the year it came to the knowledge of the partners, i.e., 25-9-80, and therefore allowable in the assessment year 1981-82. This decision was based on the Supreme Court's ruling that a trading loss due to embezzlement is deductible in the year it is discovered. The assessee's appeals for the earlier years were dismissed, and the appeal for the assessment year 1981-82 was allowed.

3. Double Deduction of the Same Embezzled Amount:
The Department argued that the assessee should not receive a double deduction for the same embezzled amount, which might have already been accounted for through manipulated entries. The Tribunal directed the ITO to ensure no double deduction occurs while giving effect to the order, thereby protecting the revenue's interest.

4. Condonation of Delay in Filing Appeals:
The assessee's appeals for the assessment years 1979-80 and 1980-81 were filed with a delay of 729 days. The Tribunal condoned the delay, considering the assessee's bona fide belief that appeals were unnecessary after the CIT(A) allowed the entire loss in the assessment year 1981-82. The delay was attributed to the late receipt of the notice under section 252(4) from the Tribunal's registry. Despite condoning the delay, the appeals were dismissed as the entire loss was already allowed in the assessment year 1981-82.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to allow the entire embezzled amount as a trading loss in the assessment year 1981-82, dismissed the revenue's appeal, and condoned the delay in the assessee's appeals, which were ultimately dismissed. The decision emphasized that the loss due to embezzlement is allowable in the year it is discovered, provided no double deduction occurs.