TMI Blog1986 (9) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... livered to the Executive Engineer. It was submitted before the IAC (Asst.) by the assessee that on or about 1-5-1981, the aforesaid jeeps were stolen and it was suspected that its Sales Manager, Mr. Paresh 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, Ahmedabad, 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 that 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 (Assessment) 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 (A) disallowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eps the cost of which amounted to Rs. 2,87,516. It was further submitted that the company was following the mercantile system of accounting and the loss was allowable in assessment year 1982-83 being the year of appeal as the theft took place during this period. The learned CIT(A) considering the arguments put forward by the assessee and also going through the order of the IAC(A) agreed with the IAC (A) that the claim had been rightly disallowed. He observed as under in his order: "On a careful consideration of the submission made by the appellant company and the assessment order of the IAC (Assessment), I incline to agree with 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 established principle of law that the only liability in praesenti can be allowed and not liability de futuro (CIT. v. Lachhman Das Mathura Das [1980] 124 ITR 411 (ALL.); Indian Copper Corpn. [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 possession of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the loss resulting from embezzlement by an employee or agent of a business is admissible as a deduction under section 19(1) of the Income-tax Act, 1922 (Corresponding to section 28 of the Income-tax 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 as deduction in the year in which it is discovered. Circular: No. 35-D (XLVII-20) of 1965 [F. No. 10/48/65-II (AI)] dated 24-11-1965." 5.1 He also referred to a decision of the Hon'ble Patna High Court in the case of CIT v. Parmanand Makhan 142 ITR 800 to contend that filing of an FIR with the police was a sufficient ground for allowing the Lal [1983] claim as a business loss. 5.2 He finally urged that as far as the assessee company was concerned they only held possession of four jeeps on the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 idle 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 today, as it was when the vehicles were restored to the assessee by the order of the Hon'ble High Court dated 19-7-1982. 6.1 It is also observed form order of the Hon'ble High Court that the Magistrate was to dispose of the case before 31-12-1982 and also submit a report about the progress of the case by 31-10-1982. 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 of the company and are undergoing to continuous deterioration being subjected to the elements day in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Sarangpur Cotton Mfg. Co. Ltd. v. CIT [1983] 143 ITR 166, wherein the decision of the Hon'ble Bombay High Court cited supra was considered. We would also like to point out that the binding decision of the Bombay High Court in the case of Lord's Dairy Farm Ltd. v. CIT [1955] 27 ITR 700 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 is prima facie evidence that 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 that fact that the assessee wrote off this amount in the year of accounts. In the absence of any evidence we are entitled to presume that the amount became irrecoverable when the assessee wrote it off in its books of accounts." 6.5 We re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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