TMI Blog1993 (6) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... d was not either business loss or incidental to profession carried out by the assessee. Therefore, the same was not admissible. 3. When the matter came before the CIT (Appeals), he confirmed the order of the ITO basically on the same reasoning. The assessee is aggrieved. 4. The learned counsel for the assessee Shri K. Sampath very vehemently argued that the loss. incurred by the assessee firm was incidental to his profession where somebody or the employee of the assessee forging the signature of the partner has taken, out the money from his bank. Therefore, it is a business loss. It was also pointed out that as soon as it came to the knowledge of the assessee that amount has been withdrawn with a forged signature, he lodged a report at Station House Officer, Lahori Gate Police Station on11-7-1984. It was pointed out that after the expiry of 8 years, nothing has come out where the assessee can hope that he will be able to get back his money. It was pointed out that the Police was not able to catch the culprits even after the expiry of 8 years. Therefore, there was no hope of getting the money back. It was submitted that the case of the assessee is where embezzlement takes place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng subject of embezzlement, theft, dacoity or destruction by fire etc. Such risk of loss is incidental to the carrying on of the operations of banking business. It will be pertinent to mention here that the Hon'ble Supreme Court referred the decision of High Court of Australia in the case of Charles Moore Co. (WA.) My Ltd. v. Federal Commissioner of [1956] 95 CLR 344. In that case the assessee was carrying on business of departmental store and he banked the takings thereof daily. It was the practice every business morning for the cashier accompanied by another employee to take the previous day's takings to the bank some two hundred yards away and pay them to the credit of the assessee. One day, while on their way to the bank, the two employees were held up at gun point and robbed of a large amount which formed part of the receipts of the assessee for the previous day. The question arose whether this amount would be allowed as a business loss. The Hon'ble Australia High Court has observed as under:-- "Then the court proceeded to state: The 'occasion of the loss' in the present case was the course pursued in banking the money...There is no difficulty in understanding the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is shown that it is because of the negligence of the bank that the assessee incurred a loss. Keeping in view that 8 years have elapsed and there is no prospect of recovery of the sum or bringing culprit on record, it cannot be said that the lose in question was not allowable in the year under appeal and also as a business loss. The Hon'ble Supreme Court in the above cited case has observed that the expenses did not relate to the frequency of the happening of the risk but to their nature and character, that is to say, the loss must be connected with the operation to produce income. The assessee firm retained the money in the premises of the bank to meet the business needs and expenses for purchasing stock in trade, which is a part of business activity. With the retention of the money there is a risk of element also. Such risk or loss is incidental to the operation of the assessee's business. If he looses such money in the ordinary course of business, the loss is deductible as a trading loss. The loss should be considered in commercial sense even if no real business loss has occurred. Keeping in view that there are no chance of recovery of amount, we are of the opinion that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank which had lost the money. The assessee only lost two blank cheques at the most, as alleged. No steps have been taken by the assessee to recover the money from the bank. 10. The entire case law cited on behalf of the assessee is not germane to the issue. It is not the assessee's money which has been lost, if at all; on the contrary it is the banks money. The money was not lying with the assessee nor with any of the employees of the assessee and hence the entire case law relied upon on behalf of the assessee is distinguishable. It was the duty of the bank to tally the signatures before clearing the cheque. 11. When the assessee does not take any effective steps for the recovery of Rs. 26,500 then it is immaterial whether a period of 8 years or more has passed without recovering a single penny, as stated on behalf of the assessee. Since no steps have been taken by the assessee against the bank, the loss if any, is not allowable. I also agree with the Revenue authorities that the loss claimed was not incidental to the profession carried on by the assessee. I, therefore, uphold the orders of the Revenue authorities and dismiss the assessee's appeal. ORDER UNDER SECTION 255( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and gave very detailed reasons for his conclusion. drawing support from several decisions of the High Court and the Supreme Court, particularly the decision of the Supreme Court in the case of Ramchandar Shivnarayan. According to him, this was embezzlement but had taken place in the profession carried on by the assessee akin to the embezzlement that took place in the business carried by the assessee before the Supreme Court in the above mentioned case and also in other cases. The learned Judicial Member after analysing the facts came to the conclusion that the assessee had irretrievably lost the money on account of forgery committed by some one on the cheque making use of which the above amount was withdrawn from the bank. Though it was a negligence of the employees of the bank and yet in so far as the assessee was concerned it lost the money and, therefore, incurred the loss and that loss was incidental to the carrying on of the profession and was a part of the professional hazards. He particularly referred to the FIR lodged with the Police and the inaction or no action by the Police for about 8 years in bringing the culprit to book, be it the person who withdrew the money by f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and in the circumstances of the case the loss of Rs. 26,500 claimed by the assessee firm as allowable as a loss under the head 'profits and gains of business or profession'?" 6. I have heard Shri Sampath for the assessee and Shri Khan for the department. The arguments addressed on behalf of the assessee were on the same lines as were urged before the Commissioner of Income-tax and the Income-tax Officer and elaborately discussed by the learned Judicial Member in his order. The arguments addressed on behalf of the department were on the same lines as were put down by the learned Accountant Member in his differing order. In particular, the Departmental Representative pointed out that this was not a case of a loss by embezzlement by the assessee's own employees. If at all there was any loss that accrued to the assessee, it was a capital loss because the money that was deposited In the bank for safe custody as well as for earning income in the current account got converted into capital and therefore, if there was any loss, it was capital loss and not revenue loss. Secondly, the loss took place not at the assessee's own premises but in the Bank's premises. Therefore, the loss has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... next question that arises is whether the money was deposited in the bank and got itself converted into capital and whether any loss out of that capital could be allowed as a business loss. Here the Courts have held repeatedly that having regard to the business exigencies, the money kept at home or in the business premises even consisting of capital is lost, such loss could be allowed as a deduction. In other words, the Courts have laid emphasis, on the view that the loss occurred on account of embezzlement or misappropriation or by fraud must have connection with the business or profession carried on by the assessee irrespective of the fact whether the money so lost was of capital or revenue. In the case of Nainital Bank Ltd, what was lost on account of dacoity was the cash kept at the business premises of one of the branches of the bank. That loss was held to be allowable as business loss. In the case of Ramchandar Shivnaryan it was the sale proceeds that reached the assessee that was lost. In the case of Associated Banking Corpn. of India Ltd., it was the money lost by withdrawing the same by posting false entries in the books of the bank. When these losses were held to be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made out. There was only a suggestion about the collusion in making this point but no positive proof was adduced. This may again lead to a high degree of suspicion but that cannot take the place of a fact. As I said earner, the assessee had clearly mentioned in the F.I.R lodged with the Police that it was on account of the connivance and the active participation of the Bank staff that fraud had taken place and, therefore, the Police should proceed against the bank also. The Police had not proceeded against the Bank the remedies are elsewhere to seek and not to disallow the loss as a consequence of the inaction of the Police. 10. Regarding the second point I am unable to agree that the loss was not that of the assessee. The Bank had debited the assessee's account with this money of Rs. 26,500 and the assessee had lost it irretrievably. It cannot, therefore, be said that the assessees money was not lost. Let us assume for the sake of argument that a businessman keeps his money in his own house for custody consisting of the collections made in the business and his own capital or keeps the same in a friend's house for safe custody or transports it to another station for disburse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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