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- Disallowance of business loss claimed by the assessee due to theft - Quantification of the allowable loss amount Analysis: 1. The appeal and cross objection in this case revolve around the disallowance of a claimed business loss by the assessee due to theft. The assessee, a partnership firm engaged in the manufacture and sale of biscuits and confectionery, debited a sum of Rs. 51,962 to the Profit & Loss account as "goods lost on account of theft." The Income Tax Officer (ITO) disallowed this amount, citing various reasons, including discrepancies in the stock-tally process and lack of concrete evidence. The ITO brought the disallowed amount of Rs. 51,926 to tax. 2. The assessee appealed to the Appellate Authority Commissioner (AAC), who acknowledged the lack of day-to-day stock maintenance by the assessee. The AAC, however, allowed a deduction of Rs. 9,000 as a business loss based on the ex-employee's admission to reimburse Rs. 10,000. The assessee then appealed against the balance of Rs. 42,926 disallowed, while the Department filed a cross objection regarding the Rs. 9,000 deduction granted by the AAC. 3. During the proceedings, the assessee's representative argued that the loss amount was accurately calculated based on physical stock-taking and sales figures. The representative cited precedents and contended that the loss was genuine, even though the Police dropped the criminal case due to insufficient evidence. On the other hand, the Department's representative supported the ITO's decision to disallow the entire loss amount, claiming that the promised payment of Rs. 9,000 constituted a bad debt. 4. The Tribunal carefully considered the arguments and facts presented. It noted that while the assessee did not maintain day-to-day stock records, the loss amount could still be determined through physical stock-taking. The Tribunal found the method employed by the assessee to ascertain the loss of Rs. 51,926 valid. It rejected the argument that accepting Rs. 10,000 from the ex-employee indicated a lower loss amount, emphasizing that recovery efforts do not dictate the actual loss incurred. The Tribunal concluded that the assessee was entitled to the deduction of Rs. 50,926 as a genuine business loss arising in the ordinary course of business. 5. Consequently, the Tribunal partly allowed the assessee's appeal by permitting the deduction of Rs. 50,926 as a business loss, while dismissing the Department's cross objection. The judgment highlighted the importance of accurate quantification of losses and affirmed the legitimacy of the claimed deduction based on the circumstances of the case.
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