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2020 (2) TMI 1039 - AT - Income TaxLoss due to fraud and embezzlement - Expenditure allowable as a deduction u/s 37 - Whether trading loss on account of embezzlement and fraud is to be allowed in the year in which the amount is written off as irrecoverable? - HELD THAT:- It is an undisputed fact that the assessee has taken legal actions, filed FIR and terminated the guilty employees. These facts on record were accepted by the DR. DR could not controvert the facts stated by the Ld. AR of the assessee. DR further could not bring on record any material/ evidence/ case laws which could controvert/raise any doubt regarding the facts already on record. It is therefore, undisputed fact that there was fraud and embezzlement for which the assessee suffered loss of ₹ 52,30,000/-. In present case of the assessee and taking guidance from the decision in the case of CIT Vs. Sales Magnesite (P) Ltd. [1994 (11) TMI 38 - BOMBAY HIGH COURT] wherein considered the issue of commercial expediency and allowance of loss in the business. The main proposition which has been analyzed that deduction in the computation of business profits, it does not mean that the items go without any deduction at all, but the question has to be resolved on the basis of commercial prudency having regard to the accepted commercial practice and trading principles. To hold it to be expenditure allowable as a deduction under section 37, it is not essential that it should be necessary, legally or otherwise, to incur the same or that it should directly and immediately benefit the business of the assessee. Even expenditures incurred voluntarily on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business would be deductible under this section. In the present case, it is not disputed that the assessee took legal recourse by filing FIR and various legal actions before Higher Forum including termination of service of guilty employees. The loss that has been occurred to the assessee because of those factors which are very much irrecoverable and in the practical context, these have to be allowed since it has been incurred by the assessee for facilitating the carrying on of the business of the assessee. The Hon’ble Supreme Court in the case of Bombay Steam Navigation Co. (1953) (P) Ltd. Vs. CIT [1964 (10) TMI 12 - SUPREME COURT] has categorically held that the question must be viewed in the larger context of business necessity or commercial expediency. No abstract or pedantic view can be taken in the matter. In view of the aforesaid decision and on examination of facts on record, we set aside the order of the Ld. CIT(Appeals) and grounds raised by the assessee are allowed.
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