2018 (6) TMI 1109 - AT - Income Tax

Addition on account of embezzlement of the fund - assessee in the present case is an AOP and engaged in the business of milk processing and production of various milk products - Held that - Addition was made in the hands of the assessee for ₹ 1,49,42,167/- on account of embezzlement loss pertaining to the previous year 2009-10 relevant to the A.Y. 2010-11. Thus if the addition is sustained in this year too then, it will amount to double addition of the same item which is contrary to the scheme of income tax provisions. Thus the addition has already been made in the hands of the assessee on substantive basis in the AY 2010- 11. Therefore, we have no hesitation in reversing the order of authorities below. Hence, the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of the order passed under Section 147 of the Income Tax Act.
2. Disallowance of embezzlement loss of ?1,49,42,167.
3. Charging of interest under Section 234A/B/C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed Under Section 147 of the Income Tax Act:
The first issue raised by the assessee was the validity of the order passed under Section 147 of the Income Tax Act. The assessee contended that the CIT(A) erred in confirming the proceedings under Section 147, arguing that no income was escaped or understated for the year under consideration. However, during the hearing, the counsel for the assessee did not advance any argument on this issue. Consequently, the tribunal dismissed this ground.

2. Disallowance of Embezzlement Loss of ?1,49,42,167:
The second issue involved the disallowance of an embezzlement loss amounting to ?1,49,42,167. The assessee, an Association of Persons (AOP) engaged in milk processing and related activities, detected a fraud/embezzlement during the financial year (FY) 2009-10. The auditor advised claiming this loss in FY 2009-10, corresponding to Assessment Year (AY) 2010-11. However, the Assessing Officer (AO) observed that this loss was disallowed in AY 2010-11 on a protective basis and added it substantively for AY 2009-10.

The CIT(A) confirmed the AO's action, referencing a prior decision where the embezzlement loss was not allowed as it had not crystallized during the year under consideration. The CIT(A) noted that the sale related to the embezzlement was accounted for in FY 2009-10, but the amount was shown as "recoverable" in the balance sheet, indicating that the loss had not crystallized. The tribunal reviewed the facts and noted that the ITAT had confirmed the addition for AY 2010-11, making any further addition for AY 2009-10 a case of double addition, which is contrary to the provisions of the law. Thus, the tribunal reversed the CIT(A)'s order and allowed the assessee's appeal on this ground.

3. Charging of Interest Under Section 234A/B/C of the Income Tax Act:
The third issue pertained to the charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act. The tribunal noted that this issue is consequential and does not require specific adjudication.

Conclusion:
The tribunal allowed the appeal of the assessee, reversing the orders of the lower authorities regarding the embezzlement loss and recognizing that any addition for AY 2009-10 would result in double taxation. The issue of interest under Section 234A/B/C was deemed consequential and not specifically adjudicated. The order was pronounced in open court on 20/06/2018.