TMI Blog2006 (3) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... vering the small amounts. In our opinion, therefore, the approach of the learned CIT (Appeals) is not justified. Hon'ble Gujarat High Court also considered the issue relating to business loss in the case of Dinesh Mills Ltd. v. CIT [ 2001 (12) TMI 65 - GUJARAT HIGH COURT] . In that case, the assessee incurred a loss on account of embezzlement of its employee between 29-1-1974 and 26-4-1976. The loss was discovered in 1977-78. The Assessing Officer disallowed the claim on the ground that the loss remained indeterminate during the assessment year in question and it could be ascertained only in subsequent years. The ld. CIT(A) allowed part of the loss which approach was also maintained by the Tribunal. The Hon'ble Gujarat High Court, after reversing the view of the Tribunal, held that in view of the statement made on behalf of the assessee to the effect that no deduction had been allowed in any subsequent year, the assessee would be entitled to deduction of loss during the assessment year in question as this was the year in which loss on account of embezzlement was in fact discovered. On the basis of this authority, the submission of the ld. counsel that in the case of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) were, therefore, not satisfied. 4.1 The Assessing Officer also rejected the claim of the assessee under section 37 by observing that the assessee failed to substantiate with evidence that the said amounts represented expenditure not in the nature of capital expenditure of personal expenditure and were laid out or accepted wholly and exclusively for the purpose of the business. He further held that the assessee had also failed to produce evidence that amounts factually become unrealizable during the period. According to him, the assessee could not explain the reason for writing off the same. The Assessing Officer, therefore, made an addition of Rs. 6,07,045 by disallowing the claim of the assessee. 4.2 In appeal, before the learned CIT (Appeals), it was submitted that the amount may not be allowable as deduction under section 36(1)(vii) but the same being in the nature of trading loss incurred in carrying out the business and being incidental to the operations of the business is allowable under section 37. Reliance in this regard was placed on the decision in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) and on the decision in the case of CIT v. K.T.M.S. Mahmood [196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance. 7. We have carefully considered the entire material on record and the rival submissions. From the details furnished by the assessee in the paper book it is found that the assessee had given full details of each item. The amounts represented advances given to the parties. The advances were given during the course of business for supply of raw-material etc. Either the material was not supplied or defective material was supplied. The amount became irrecoverable from the parties to whom the advances were made. Thus, the advances were totally connected with the business activities of the assessee. The learned CIT (Appeals) was not justified in observing that the amount of advance was not a trading loss. After seeing the details of amounts, it is observed that the assessee was not required to take a lengthy litigation for recovering the small amounts. In our opinion, therefore, the approach of the learned CIT (Appeals) is not justified. 7.1 In the case of Crescent Films (P.) Ltd. the assessee had made temporary advances and loss of amount advanced was treated to be in the course of business. It was held that advance need not be made only in money lending business. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s loss. The ITAT, Delhi, after placing reliance on the decision in the case of CIT v. Abdul Razak Co. [1982] 136 ITR 825 (Guj.) and on the decision of Allahabad High Court in the case of CIT v. Jwala Prasad Radha Kishan [1977] 107 ITR 540 allowed the claim of the assessee under section 37 by treating the non-recovery of the advance as business loss. The ratio laid down in the above referred decisions is also applicable to the case of the present assessee and, therefore, in view of these decisions and on totality of the facts and circumstances, the view taken by the ld. CIT(A) deserves to be upheld. 7.3 In the case of Ramchandar Shivanarayan v. CIT [1978] 111 ITR 263 (SC); an amount of Rs. 30,000 was stolen which was borrowed from the creditors for purchasing Government securities. In spite of lodging a complaint, the amount could not be recovered. The claim of the assessee for deduction of Rs. 30,000 as a business loss was allowed and it was treated to be part of trading loss. The Hon'ble Supreme Court while deciding the matter followed its earlier order in Badridas Daga v. CIT [1958] 34 ITR 10 (SC). In the case of Badridas Daga, an agent of the assessee withdrew from the firm& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the employee of the assessee who defalcated the amount was not authorized to disburse the amount. On a reference, the Hon'ble High Court allowed the claim of trading allowance by observing as under: Held, that the mere fact that the duty to make payment of wages is cast on the manager or cashier is no reason to hold C that the entrustment of money to the employee is not in the course of carrying on the business of the assessee. The entrustment of money with an employee for disbursement of wages was in the course of the assessee's business and since the employee defalcated the amount when he was engaged in the activities of the assessee's business the loss sustained by the assessee was directly connected with the business operation and hence allowable as trading loss. 7.7 The issue has also been examined by Hon'ble Allahabad High Court in the case of Shitla Prasad Shyam Lal v. CIT [1991] 188 ITR 514. In that case, it was held that simply because the criminal case was pending or a civil was not filed, the claim of the assessee for deduction of loss could not be left undetermined. In that case, the employee of the assessee embezzled some amount, which co ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
