1986 (4) TMI 80 - AT - Income Tax

Summary

Issues:
1. Eligibility of the assessee for relief under section 80J.
2. Allowance of claim for misappropriation as a loss in the course of business.

Analysis:

Issue 1: Eligibility for Relief under Section 80J
The case involved a company engaged in trading and manufacturing activities, seeking relief under section 80J for its pesticides unit. The Income Tax Officer (ITO) calculated the relief based on the proportion of own capital to total assets of all units, resulting in a specific amount. The assessee claimed allowance for misappropriation by an employee, which was partially recovered and written off in the profit and loss account. The Commissioner of Income Tax (Appeals) directed the ITO to apply a different ratio for calculating relief, but the original ITO's decision was confirmed. The Tribunal noted significant internal accruals and government funds received, correlating them with the capital employed in the new unit for relief computation. Ultimately, the Tribunal found no referable question of law regarding the eligibility for relief under section 80J, as the appeal focused on relief quantification rather than eligibility.

Issue 2: Allowance of Claim for Misappropriation
Regarding the claim for misappropriation as a loss in the course of business, both the CIT and the ITO had initially rejected the claim. However, the Tribunal examined various pieces of evidence, including inquiry reports, charged sheets, and civil suits. The Tribunal found that there was no evidence to suggest recovery from the employee, leading to the conclusion that the loss was pertaining to an earlier year and was correctly written off. The Tribunal also considered the auditing of the company's accounts by the Comptroller and Auditor General of India, affirming the allowance of the loss under section 28 of the Income Tax Act. The Tribunal dismissed the application, stating that the questions of law raised did not arise from the Tribunal's order, as the focus was on the allowability of the loss under section 28 rather than the specific year of allowance.

In conclusion, the Tribunal dismissed the reference application, emphasizing that no referable question of law arose from the issues raised by the Revenue. The Tribunal's decision highlighted the importance of evidence and factual considerations in determining the eligibility for relief under section 80J and the allowance of losses in the course of business under section 28.