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2017 (9) TMI 318 - JAMMU & KASHMIR HIGH COURTLoss on account of embezzlement - Held that:- When embezzlement comes to the notice of an employer, it can be said that such embezzlement is detected by the employer.The word “discovers” has been interpreted by English Courts to means “comes to the conclusion from the examination the Inspector makes, and from any information he may choose to receive” or “has reason to believe” or “finds or satisfied himself” or “honestly comes to the conclusion from information before him.” The expression detection and discovery have different and distinct connotations in law and the expression “discovery” has to be interpreted so as to mean that loss must be deemed to have arisen only when employer comes to know about it and realizes that the amount embezzled cannot be recovered and not merely from the date of acquiring knowledge in which that embezzlement has taken place. Accordingly, the first substantial question of law is answered in favor of the assessee and against the Revenue. Loss by embezzlement being incidental to the banking business - allowed as deduction in the year of its detection or discovered - Held that:- The second substantial question of law framed by this Court is answered by stating that loss by embezzlement being incidental to the banking business should be allowed as deduction in the year it is discovered and the expression “discovered” has to be read in the context of Circular dated 24.11.1965 issued by Central Board of Direct Taxes. Accordingly, the second substantial question of law is answered in favor of the assessee and against the Revenue.
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