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TMI Blog1983 (8) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... tems and they were in the nature of handling losses, that usually the purchases are made in bags of different weights and they are rebagged and standardised, that the loss occurring at that stage as well as at the stage of handling should be taken to be handling losses and that at any rate they are only contra entries and did not affect the profit and the society is entitled to create a non-statutory reserve in view of section 62 of the Co-operative Societies Act. As regards the sum of Rs. 4,803, it was contended before the Tribunal that during the supply of goods to the jail authorities, a shortage has occurred and, therefore, a reserve has been created in that regard as it could not be written off without due sanction from the higher authorities during the year of account. As against these contentions, the Revenue contended before the Tribunal that the stock deficit has not been entered then and there in the books and that the deficiency in stocks arising out of physical verification is credited towards the reserve account which is neither an outgoing nor has been treated as a loss during the year of account. The Tribunal held that during the year of account goods of the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year has not been established. Admittedly, the assessee has not shown the said sum of Rs. 4,803 as a loss during the year of account or that the deficiency has been written off. The assessee merely created a reserve for the said sum of Rs. 4,803 out of the profits and claimed a deduction therefor on the basis that it is a deficiency in the stock which occurred in the course of the business. The stand taken by the Revenue which has been accepted by the Tribunal is that so long as the deficiency in stock is not written off and treated as a loss, it can never be treated as an outgoing during the accounting year and, therefore, the deduction claimed cannot be allowed. As regards the sum of Rs. 1,13,589 which is a reserve for deficit in stocks, the Tribunal has found that goods worth that sum have been treated in the stock books as stocks but they were shown as not available. The fact that they are handling losses or any other type of loss has not been proved and that in any event, since the deficiency has not been written off and treated as a loss of stocks, no deduction could be claimed for the said sum. According to the Tribunal, it is only when the actual loss in stocks is dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn as recoverable from those responsible. It is not possible to list out all possible reserves of this type and to deal with the procedure for their disposal or recoupment. Enough has been said above to make it possible for the present auditor to understand the implications and advise the societies as to the correct mode of wiping off such non-statutory reserves. This is a problem not only for auditors but also for those in administrative charge of societies. They must make a move, examine all such cases and take urgent steps either to recover the assets concerned or write them off by adjustment from the specific reserves. Sustained and patient work is necessary in this direction. It is the duty of the district co-operative audit officers to ensure that auditors do not, as far as possible, increase the number of such reserves by prevailing on the societies to avoid the situations which render the creation of such reserves necessary. The problem bristles with difficulties. concerted effort on the part of all concerned is called for to get over it." " Learned counsel for the assessee states that the purpose of creating such a non-statutory reserve is to prevent the inflation of div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,15,000 pursuant to an order of the court made in 1949 and a settlement in 1951. On those facts, the Supreme Court held that the loss must be taken to have occurred to the bank after the liquidator came to know about the embezzlement and realised that the amounts embezzled could not be recovered and that the sum of Rs. 10,15,000 which the liquidator was constrained to pay to the constituents was not a permissible deduction in the accounting year. The Supreme Court also held that it cannot be said that irrespective of other considerations, as soon as an embezzlement of the employer's funds takes place, whether the employer is aware or not of the embezzlement, there results a trading loss and that so long as there is a reasonable prospect of recovery of the amounts embezzled, trading loss in a commercial sense cannot be deemed to have resulted. Embezzlement of funds by an agent does not necessarily result in loss immediately when the embezzlement takes place and the embezzlement may remain unknown to the principal and the assets embezzled may be restored by the agent or servant and that in such a case, there is no real loss in a commercial sense, that even in cases where the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return of income by the assessee. But they were furnished in the course of the proceedings before the Income-tax Officer at the latter's request. The question arose as to whether the Tribunal was justified in doing so. This court held that a conjoint reading of sections 32 and 34 of the Income-tax Act, 1961, showed that the allowance of depreciation is available to the assessee in all cases, that it will be open to the officer to grant depreciation even if the assessee had not furnished the prescribed particulars as the computation of income under the Act is the computation of the real and proper statutory income and that this income could be arrived at only after allowing the deduction available under the law. The above decision has been relied on by the assessee in support of his contention that even without the actual writing Off of the loss during the year of account, the assessee is entitled to claim deduction of the amount created as a reserve towards such loss in stocks, for that alone will indicate the real or proper statutory income and that if the deduction is not allowed, the computation of income will not be real. We do not see how the observations made in that case w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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