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TMI Blog2010 (11) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... quired the debts which is in the nature of deposits made by the erstwhile merged company for arranging the residential accommodation for its employees and subsequently the said deposits become unrecoverable then it is allowable as business loss u/s 28 - Hence, appeal of the revenue is dismissed. - ITA No. 6931/Mum/2008, - - - Dated:- 19-11-2010 - R.S. Syal, Vijay Pal Rao, JJ. S.K. Mohanty for the Appellant Arvind Sonde for the Respondent ORDER Vijay Pal Rao, Judicial Member 1. This appeal by the revenue is directed against the order dated 10.09.2008 of CIT(A)-III, Mumbai for the assessment year 2003-04. 2. Only ground raised by the revenue in this appeal reads as under: "1. On the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this amount is not a debt arising out of sales during the year but the deposits were given for obtaining the accommodation for its employees of erstwhile BSPL. As the such deposits was given for use of the rental accommodation by the employees of the assessee company and in fact, the deposit given for the purposes of business. Accordingly, non-recovery thereof is a loss to the business as bad debts which is not allowable u/s 36(1) (vi i) and it should be allowed as business loss u/s 28 itself. 4. The AO was of the view that the assessee company has no business to rental deposits in connect ion with the personal benefits of its employees. The assessee has not furnished any evidence by way of agreement or any other similar document to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereabouts. Therefore, recovery from them is not possible. He submitted that the provisions of sect ion 36(1) (vi i) of Income Tax Act, 1961 are not attracted. The learned AR has submitted that the assessee has taken an alternative ground and claimed the deduct ion u/s 28 as a business loss. The learned AR submitted that these advances were for business purpose which is not disputed and the assessee has no details whatsoever about the persons to whom the advances were given and i t is also not possible to get their details. Therefore, recovery of these deposits is not possible. Hence these advances be treated as business loss and be allowed u/s 28 of the Act. He has relied upon the decision of the Hon. Jurisdictional High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and purpose of the deposits but the AO disallowed the claim of the assessee for want of relevant agreement under which the deposits were made as well as the other details of the persons to whom the deposits were given. When i t is not disputed that the record of the ENRON was sealed by the Government and the assessee company was not handed over the relevant record then i t is not reasonable and proper to expect f rom the assessee to produce the said record. We further note that the AO has disallowed the claim of the assessee only with respect to the bad debts u/s 36(1) (vi i) and the AO has not given any finding regarding the claim of the assessee as business loss u/s 28. I t is the evident that the assessee has made the claim of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision in the Act then the deduct ion must be allowed if no prohibition against this in the Act. In the case in hand, the deposits were made by the erstwhile BSPL for arranging the residential accommodation of its employees and therefore, it was not for creating any capital asset. Accordingly, we do not agree with the content ion of the learned DR that the said loss is in the nature of capital account and cannot be allowed. When the deposits were made for the residential accommodation of the employees of the assessee-company then i t was nothing but made for the business of the assessee and incidental to the operation of the assessee. Accordingly, when the amount became irrecoverable, the same would be a loss incur red in carrying the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to trading loss. 11. In these facts and circumstances of the case and applying the tests, the hon. Jurisdictional High Court at pages 708 and 708 has held as under: "If a loss by embezzlement can be said to be necessarily incurred in carrying on the trade, it is allowable as a deduction from profits. In the ordinary case, it springs directly from the necessity of deputising certain duties to an employee, and should therefore be allowed". 9. Therefore if in any case it is found that it was necessary to deputise certain duties to an employee and it was also found that the loss sprang directly from the necessity of doing so, then the loss would be a trading loss and the assessee would be entitled to claim that amount as proper ded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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