1986 (6) TMI 58 - AT - Income Tax

Summary

Issues Involved:
1. Embezzlement of funds by Shri Kishore Hemani.
2. Authorization of Shri Kishore Hemani to collect sale proceeds.
3. Admissibility of evidence under Rule 46A of IT Rules.
4. Determination of the assessment year for claiming the embezzled amount as a trade loss.
5. Consistency in the Department's approach towards similar cases.

Detailed Analysis:

1. Embezzlement of Funds by Shri Kishore Hemani:
The assessee claimed that an amount of Rs. 2,64,795 was embezzled by Shri Kishore Hemani, who was authorized to collect sale proceeds. The FIR was lodged on 29th Jan., 1981, and a police challan was made against Shri Hemani under Section 408 of the IPC. The ITO disallowed the claim citing lack of evidence that Hemani was authorized to collect payments. However, the AAC allowed the claim, noting that the embezzlement was established by documentary evidence and the Inspector of Police's letter dated 1st Aug., 1983, confirmed no hope of recovery.

2. Authorization of Shri Kishore Hemani to Collect Sale Proceeds:
The ITO argued that there was no evidence to prove that Hemani was authorized by the assessee to collect payments. The AAC, however, found that the documentary evidence and the police report confirmed that Hemani had been collecting payments on behalf of the assessee and other sister concerns for several years. The Tribunal upheld the AAC's view, noting that the embezzlement was proven and occurred in the course of business.

3. Admissibility of Evidence under Rule 46A of IT Rules:
The Revenue contended that the AAC admitted fresh evidence in violation of Rule 46A by considering assessment orders of M/s J.S. Sobha Singh & Sons and Hardeep Singh Bubber without giving the ITO an opportunity to examine them. The Tribunal dismissed this contention, stating that the ITO had the records and the assessment orders were public documents. The AAC was justified in admitting them as they were not fresh evidence but part of the existing records.

4. Determination of the Assessment Year for Claiming the Embezzled Amount as a Trade Loss:
The AAC allowed the embezzled amount as a trade loss for the assessment year 1985-86, based on the police letter dated 1st Aug., 1983, which indicated no hope of recovery. The Tribunal confirmed this, citing the Supreme Court's decision in Associated Banking Corporation of India vs. CIT, which established that a trade loss arises when there is no reasonable chance of recovery.

5. Consistency in the Department's Approach Towards Similar Cases:
The assessee argued that in similar cases involving M/s J.S. Sobha Singh & Sons and Hardeep Singh Bubber, the Department allowed claims for trade loss due to embezzlement by Hemani. The Tribunal agreed, stating that the Department must be consistent and non-allowance in the assessee's case would be discriminatory. The Tribunal emphasized that the facts were identical and the claim should be allowed to maintain consistency.

Conclusion:
The Tribunal confirmed the AAC's decision to allow the embezzled amount as a trade loss for the assessment year 1985-86. The ITO's disallowance was deemed erroneous due to lack of valid reasons and reliance on irrelevant factors. The cross-objection by the assessee was dismissed as infructuous since the AAC's order was upheld. The appeal by the Revenue was also dismissed.