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TMI Blog1987 (9) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted before the IAC (Asst.) by the assessee that on or about 1st May, 1981, the aforesaid jeeps were stolen and it was suspected that its Sales Manager, Mr. Banerji was involved in the theft. A FIR was filed with the police and as a result of the investigations made by the police, Mr. Banerji was arrested and the four jeeps were recovered. It transpired that these jeeps had been registered in the names of different persons and the Metropolitan Magistrate Ahmehabad passed orders for returning the jeeps to the persons in whose names they had been registered. An appeal was filed against the order of the Metropolitan Magistrate in the Gujarat High Court which not only stayed the order of the Metropolitan Magistrate, but directed tha the jeeps be placed in the custody of the assessee for safe keeping till the final decision by the Court. 3. After setting out the above facts in the assessment order, the IAC (Asst.) came to the conclusion that the assessee had a liability of Rs.2,87,128 towards M/s Mahindra Mahindra against which a provision had been made and which had been claimed as a business loss. The IAC (Asst.) disallowed the claim on account of the following reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r jeeps the cost of which amounted to Rs.2,87,516. It was further submitted that he company was following the mercantile system of accounting and the loss was allowable in asst. yr. 1982-83 being the year of appeal as the theft took place during this period. The ld. CIT(A) considering the arguments put forward by the assessee and also going through the order of the IAC (Asst.) agreed with the IAC (Asst.) that the claim had been rightly disallowed. He observed as under in his order: "On a careful consideration of the submissions made by the appellant company and the assessment order of the IAC (Assessment), I incline to agree wit the IAC (Assessment) that the claim of Rs. 2,87,128 was rightly disallowed. Various legal authorities quoted by the IAC (Assessment) are supporting the disallowance. It is now an established principle of law that the only liability in present can be allowed and not liability de future (CIT vs. Lachhman Das Mathura Das (1980) 124 ITR 411 (All), Indian Copper Corporation Ltd. vs. CIT 1976 CTR (Pat) 227. In the appellant company's case it is not yet certain whether or not it would suffer any loss at all. The jeeps have been recovered and are in the possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, the Supreme Court has affirmed the view that the loss resulting from embezzlement by an employee or agent of a business is admissible as a deduction under s. 19(1) of the IT Act. 1922 (Corresponding to section 28 of the IT Act, 1961) if it arises out of the carrying on of the business and is incidental to it. In the second case, the decision is, that loss must be deemed to have arisen only when the employer comes to know about it and realises that the amounts embezzled cannot be recovered. 2. In the light of the above decision of the Supreme Court, the legal, position now is that loss by embezzlement by employees should be treated as incidental to a business and this loss should be allowed deduction in the year in which it is discovered. Circular No. 35-D (XLVII-20) of 1965 (F. No. 10/48/65-II (AI) dt. 24th Nov., 1965." 5.1. He also referred to a decision of the Hon'ble Patna High Court in the case of CIT, Bihar vs. Parmanand Makhan Lal (1983) 35 CTR (Pat) 5 : (1983) 142 ITR 800 (Pat) to contend that filing of an FIR with the police was a sufficient ground for allowing the claim as a business loss. 5.2. He finally urged that as far as the assessee company was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r jeeps but the arrest of Mr. Banerjee. That the four jeeps were found to have been registered in the name of four outsiders on the basis of letters purported to have been issued by the authorised signatory of the company. That the matter went to Court and the Hon'ble High Court directed the custody of the jeeps to be placed with the company with a direction not to put them on road or use them. It was also held that the vehicles shall remain ideal pending the trial and the same would have to be produced as and when directed by the Court. That the position remains the same, as of toady, as it was when the vehicles were restored to the assessee by the order of the Hon'ble High Court dt. 19th July, 1982. 6.1. It is also observed from the order of the Hon'ble High Court that the Magistrate was to dispose of the case before 31st Dec., 1982 and also submit a report about the progress of the case by 31st Oct., 1982. As mentioned earlier, no progress has been made in the proceedings whatsoever. We would like to draw attention to the fact that the four jeeps lying with the company under orders of the Court are not the property of the company. They are not reflected in the closing stock o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at an assessee, subsequent to the write-off of a debt, continued legal proceedings against the debtor necessarily lead to the conclusion that the write-off was improper or lacked bona fides." 6.4. We would also refer to the decision of the Hon'ble Gujarat High Court in the case of Sarangpr Cotton Manufacturing Co. Ltd. Vs. CIT (1982) 31 CTR (Guj) 247 : (1983) 143 ITR 166 (Guj), wherein the decision of the Hon'ble Bombay High Court cited supra was considered. We would also like to point out tha the binding decision of the Bombay High Court in the case of Lord's Dairy Farm Ltd. vs. CIT (1955) 27 ITR 700 (Bom) was also considered by the Hon'ble Gujarat High Court. The following observation of their Lordships at page 708 has been referred to: "When a businessman writes off an amount, there in Prima facie evidence that amount is irrecoverable. Undoubtedly, the Department can rebut the Prima facie inference by drawing attention to circumstances or by lending some evidence to suggest that the position taken up by the assessee was not correct. In this case there is no evidence whatsoever on the record except the fact that the assessee wrote off this amount in the year of account. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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