9911796707
TMI Blog2024 (11) TMI 1097X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income in pursuance of notice U/s 148 of the Act. We note that the assessee offered the sum of Rs. 229 lakhs to tax, after recovery of the funds. We find that it is a justified claim for assessee that after receiving all the recovery, the same will be offered to tax. But the impugned amount was not recovered during impugned assessment year. It is only detected in the bank account of employee s wife. Only on the basis of the assumption the addition is unjustified. The debited amount is not fulfilling the purpose of expenses claimed U/s 37(1) of the Act but after all this expense is related to loss due to embezzlement which is allowable expenditure. The assessee is in process of recovery and after recovering the same the realized amount was offered for tax. We respectfully relied on the order of Bombay Forgings Pvt Ltd [ 1993 (9) TMI 99 - BOMBAY HIGH COURT] and G.G. Dandekar Machine Works Ltd [ 1993 (1) TMI 40 - BOMBAY HIGH COURT] In this issue, the assessee is eligible for the deduction due to loss of fund in embezzlement. AO unable to bring any evidence the impugned amount was recovered during impugned assessment year, in our considered view, the addition is unjustified - Decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced as below: - The expense was duly covered under section 37(1) in the financial statement of the assessee. But the reopening was made as per the information received by the ld. AO that the impugned amount was deposited in the bank account of the employee s wife. In other case, it is a sustainable claim of expenses under section 28 for embezzlement of the expenses. Only by mere mentioning section 37, the addition was confirmed. The Ld.AR invited our attention in appeal order page 11, para 6.3 which is reproduced as below: - 6.3 The facts recorded finding of the AO in the assessment order and the submission made by the appellant has been considered. The facts of the case of the appellant are that one of the employee, Shri Augustine Fernandes misappropriated funds to the extent of Rs. 343 lakhs by raising bogus vouchers and claiming bogus expenditure in the name of M/s. Piramal Enterprises Ltd. Out of misappropriation of funds, the appellant recovered an amount of Rs. 229 lakhs and expected recovery of Rs. 60 lakhs from realization of property, which was sub judice. Cash of Rs. 30,62,000/- was deposited by Shri Augustine Fernandes in the bank account jointly held with his wife in Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such embezzlement was duly taken care of in the accounts of the relevant year itself. Thus, though the assessee-company had no knowledge as such of the loss by embezzlement of the previous year, the loss had been suffered inasmuch as goods had been surreptitiously taken out of the assessee's stock without crediting the sales account and, consequently, the loss was reflected in the books of account. The assessee-company having come to know of the embezzlement some time in the year 1976, referred the matter to a detective agency who submitted their report in February 1977 which confirmed the fact of embezzlement in the previous years and determined the total loss by embezzlement at Rs. 9,07,230 out of which Rs. 6,54,777 related to the previous year under consideration. The ITO was of the opinion though the loss by embezzlement was caused to the assessee during the relevant previous year, the detection having taken place subsequently, the claim for deduction of the amount of loss can be allowed only in the year when the detection took place and the final report was submitted by the detective agency. He, therefore, back to the income of the assessee a sum of Rs. 6,54,777 repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. In fact, in a situation like this, so far as loss is concerned, detection was not relevant. It was relevant only for the purpose of finding of culprits and recovery from them, if possible. 6. Under the circumstances, we are of the clear opinion that the loss caused to the assessee by embezzlement during the relevant previous year was allowable as a deduction in computation of the income in that previous year itself. The first question is, therefore, answered in the negative, that is, in favour of the assessee and against the revenue. He further relied on the order of the Hon ble Bombay High Court in case of G.G. Dandekar Machine Works Ltd vs CIT (1993) 202 ITR 161 (Bom) held that Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions - Allowable as - Assessment year 1973-74 - Whether if loss incurred by assessee is found to be incidental to carrying on of his business, it will be deductible as a trading loss in computing profits of assessee from said business - Held, yes - Whether where there was embezzlement of amount from assessee's current bank account which was maintained by it for running of its business, such a loss was incidental to business of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of sales tax which it was liable under the law to pay during the relevant accounting year. It may be added that the liability remained intact even after the assessee had taken appeals to higher authorities or courts which failed. The appeal is consequently allowed, and the judgment of the High Court is set aside. The question which was referred is answered in favour of the assessee and against the revenue. The assessee will be entitled to costs in this court and in the High Court. We note that the assessee offered the sum of Rs. 229 lakhs to tax, after recovery of the funds. We find that it is a justified claim for assessee that after receiving all the recovery, the same will be offered to tax. But the impugned amount was not recovered during impugned assessment year. It is only detected in the bank account of employee s wife. Only on the basis of the assumption the addition is unjustified. The debited amount is not fulfilling the purpose of expenses claimed U/s 37(1) of the Act but after all this expense is related to loss due to embezzlement which is allowable expenditure. The assessee is in process of recovery and after recovering the same the realized amount was off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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