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TMI Blog2023 (9) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... vities by the assessee trust. Hon'ble Apex Court in the case of Nainital Bank Ltd [ 1964 (9) TMI 11 - SUPREME COURT] held that the retention of money in the bank premises carries with it the ordinary risk of it being subjected to embezzlement, theft, dacoity or destruction by fire and such risk of loss is incidental to the carrying on of the operation of the business of banking and, therefore, the loss of cash by dacoity was an admissible deduction. Undisputedly, no doubt has been cast on the embezzlement of funds and we are of the considered view that loss is a revenue loss and the same deserves to be allowed. Therefore, this ground of the assessee s appeal stands allowed. Addition on account of difference in interest income as per Form-26AS and the income disclosed in the return of income - argument of assessee has declared higher interest income in earlier years, and, therefore, the same should be set off in this year does not find favour with us - HELD THAT:- The argument of the AR that the assessee has declared higher interest income in earlier years, and, therefore, the same should be set off in this year does not find favour with us. All the same, as has been st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the order dated 04.01.2019 passed by the ld. Commissioner of Income Tax (Appeals), Bhatinda (hereinafter called the CIT(A) ) for Assessment Year (AY) 2015-16. 1.1 The following revised grounds have been raised by the assessee: 1. That the Ld. CIT(A) having accepted the fact that there has been embezzlement by the employees and still has erred in confirming the addition of Rs. 49,09,290/-, which is against the facts and circumstances of the case. 2. That the CIT(A) has erred in confirming the addition of Rs. 65,94,957/-on account of alleged difference in the interest Income as per Form No. 26AS and as per books of accounts as he failed to consider that higher interest income, has been disclosed in the earlier years and later years while filing the return of income. 3. Notwithstanding the above said grounds of appeals,, the CIT(A) have failed to appreciate the fact that even after the confirmation of above addition on account of embezzlement and difference of interest income as per 26AS, there is much more application of income as per the chart submitted to him during the course of appellate proceedings and, thus, the action of the Assessing in not allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable facts and circumstances of the case, the Ld. CIT has failed to appreciate the decision of the Hon'ble Calcutta High Court in the case of DIT(E) Vs. Trustees of Singhania Charitable Trust reported in 199 ITR 819 (1993) wherein it was held that specific objects of the future employments of the accumulated funds need to be mentioned in the Form No. 10 which is contrary to the factual position in this case and which also needs to be considered against the backdrop that the Apex Court has only dismissed in 2019 the SLP filed by Revenue against a contrary judgement by the Hon'ble Gujarat High Court in the case of CIT(E) Vs. Bochasanwasi Shri Akshar Purushottam Public Charitable Trust reported in 102 taxmann.com 122(2019) which dismissal cannot be applied as res judicata in the instant case of the assessee. 2.0 The brief facts of the case are that the assessee is a Society registered under the Societies Registration Act (XXI of 1860), vide registration No. 328 of 1982-83, dated 19.08.1982. The Society is also registered u/s. 12AA of the Income Tax Act, 1961 (hereinafter called the Act ), vide order dated 30.05.2006. 2.1 As per the Memorandum of the Society, the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity on account of embezzlement of funds by the employees of the assessee-society, out of the addition of Rs. 1,05,30,712/- made by the Assessing Officer. It was submitted by the ld. Authorized Representative of the assessee that the background pertaining to this addition is that the affairs of the assessee s society are mainly looked after by the President of Society, namely, Shri Inderjeet Singh Sekhon, who at present is of 94 years of age. It was further submitted that at the time of the embezzlement, he was of 87 years of age. It was further submitted that, although, he is still actively engaged in looking after the affairs of the society, two employees of the society manipulated certain bills of expenditure by manipulating the amounts payable to the various vendors by increasing them and got the cheques against those manipulated bills signed by the President of Society and managed to embezzle those funds during two Financial Years i.e. 2014-15 and 2015-16. 3.1 It was further submitted that this embezzlement was discovered only at a later stage when the two employees left their employment with the assessee-society and went on to settle abroad and new staff was appointed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso drew our attention to the CBDT Circular No. 35D(X1, VII-20) [F.No.10148/65-IT (AL) and it was submitted that as per this Circular, the legal position now is that loss by embezzlement by employees should be treated as incidental to business and should be allowed as a deduction in the year in which it is discovered. 3.5 The ld. AR of the assessee also placed reliance on the order of the Jaipur Bench of ITAT in the case of M/s Pawan Specialties (P) Ltd. in ITA No.809/JP/2016 and it was submitted that the aforesaid Circular of the Board has been relied upon by the Jaipur Bench in this case and the loss from embezzlement has been allowed as a deduction. Our attention was also drawn to the judgment of the Hon'ble Allahabad High Court in the case of Sheetla Prasad Ramlal vs. CIT reported in 188 ITR 514, wherein, in view of above mentioned Circular issued by the Board, the loss on account of embezzlement made by the employees was held to be as incidental to carrying out of business. 3.6 Drawing our attention to the order of the ld. First Appellate Authority on the issue, it was submitted that after considering the written submissions of the assessee, the ld. First Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and of Rs. 65,94,257/- on account of difference in interest income and submitted that even if these additions are to be confirmed, there is much more application of income by the assessee and further the assessee is to be allowed benefit of exemption u/s. 11 of the Act, because the assessee society continues to enjoy the benefit of registration granted u/s. 12A of the Act and as such the assessment of income as AOP was not justified. 6.0 In response to the arguments advanced by the ld. AR, the ld. CIT (DR), who supported the orders of the Assessing Officer as well as of the ld. First Appellate Authority, argued that the assessee was not carrying out any business. It was engaged in charitable activities and, therefore, the loss on account of embezzlement cannot be allowed. 6.1 Regarding the arguments of the ld. AR with regard to interest income, the ld. CIT(DR) argued that each assessment year is an independent assessment year and the income earned or accrued is to be taxed in that particular assessment year only. It was submitted that even if the assessee had disclosed higher interest income in earlier assessment years on its own, the benefit of set off against interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2 Further, reliance was also placed on the judgment of the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Market Committee, Tohana reported in 201 Taxman 235 (P H) wherein, the order of the Tribunal was upheld and it was held that merely because the assessee had mentioned development work in general, it cannot be said that the primary condition to Section 11 has not been fulfilled. 8.3 The ld. AR also placed reliance on certain other judicial precedents, the copies of which have been filed in Paper Book. The same have been taken on record and the same will be duly considered while adjudicating the issue. The ld.AR submitted that in view of the various judicial precedents, the ld. CIT(A) had rightly deleted the addition. 9.0 We have heard the rival contentions and have also perused the records as well as the paper book and the judicial precedents filed by the assessee in support of the various contentions. We have also perused the orders of the lower authorities. We now take up the various grounds raised one by one. 9.1 As far as the assessee s appeal is concerned, Ground No.1 of the revised grounds of appeal challenges the confirmation of addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had incurred loss of cash due to dacoity and had claimed the same as deductible business expenditure. The Hon'ble Apex Court held that the retention of money in the bank premises carries with it the ordinary risk of it being subjected to embezzlement, theft, dacoity or destruction by fire and such risk of loss is incidental to the carrying on of the operation of the business of banking and, therefore, the loss of cash by dacoity was an admissible deduction. Undisputedly, no doubt has been cast on the embezzlement of funds and we are of the considered view that loss of Rs. 49,09,290/- is a revenue loss and the same deserves to be allowed. Therefore, this ground of the assessee s appeal stands allowed. 9.4 As far as assessee s ground no.2 is concerned, this ground challenges the confirmation of addition of Rs. 65,94,957/- on account of difference in interest income as per Form-26AS and the income disclosed in the return of income. The difference, as pointed out by the Assessing Officer, has not been disputed by the ld. AR. The argument of the ld. AR that the assessee has declared higher interest income in earlier years, and, therefore, the same should be set off in this year d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt, Form-10 filed by the assessee did not specifically mention the object for which the funds were being accumulated. All the same, the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Market Committee, Tohana (Supra) has laid down that merely because the assessee had mentioned development work in a general manner in Form-10, it cannot be said that the condition of Section 11(2) of the Act has not been fulfilled. While coming on this conclusion, the Hon'ble Punjab and Haryana High Court also referred to the judgment of the Hon'ble Delhi High Court in the case of Director of Income Tax vs. Mitsui Co. (2008) 167 Taxman 43. 10.1 We have also drawn support from the order of the Chandigarh Bench of ITAT in the case of Rogi Kalyan Samiti vs. ACIT, Palampur reported in 174 TTJ 34, wherein the Coordinate Bench had held as under: The undisputed facts of the assessee are that the assessee society is registered under section 12A of the Act, hence is eligible to get exemption under section 11 of the Act. However, during the year, the assessee could not utilize funds to the extent of 85% and to comply with the requirements of section 11(2) of the Act, it filed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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