TMI Blog1981 (8) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... It appears that with the help of Bhat and taking undue advantage of the confidence the assessee had in him, the said Babu Subba Naik started making defalcation which was later on discovered by the partner Shri. J.M. Nayak. Shri Nayak lodged a police complaint at Swargate Police Chowky on 5th June, 1977 stating the Babu Subba Naik had made a defalcation of the amounts and that he had misappropriated sales profits of the canteen to his benefit. After taking the complaint from Shri Nayak, it is not known as to what the police did in the matter. On 24th March, 1978 a statement of Shri J.M. Nayak was recorded by the police at Swargate Police Chowky and even afer taking the statement nothing so far has been achieved by the police in either arrest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the next year no deduction of any amount is given to the assessee.) 3. Against the order of the ITO, the assessee went in appeal before the AAC. The AAC in para 4 of his order observed that there is no evidence produced that the money defalcated by the manager is not likely to be recovered nor any alternative restitution obtained. The AAC further observed that entry in P L account debited to loss on account of defalcation is correctly made. The AAC agreed with the ITO that he had rightly relied on (1965) 56 ITR 1(SC). Accordingly, the AAC dismissed the assessee's appeal hence this appeal before the Tribunal. 4. Shri Kulkarni, the ld. Rep. of the assessee pointed out that misappropriation was made by the assessee's manager firstly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot doubted amount of defalcation. The amount was based on the auditor's report and without getting the report from the auditor, the assessee could not lay his hands on the exact figures. Therefore it cannot be said that only after the auditor's report was received the assessee became aware of the defalcation. 5. According to Shri Sathe, the ld. Deptl. Rep. the defalcation was discovered in May 1977 and that the affidavit should be ignored and I should go by the police complaint. Shri Sathe heavily relied on 56 ITR 1 (SC). It was stated that the ratio of the judgment of the Supreme Court is applicable to the facts of the case in hand. It was argued that upto May 1977 the loss was not known. Since the investigation is still going on, the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the ratio laid down by the Supreme Court cannot be made applicable to the facts of the same in hand. Therefore, I set aside the order of the AAC and restores the matter to his file with a direction to know exactly as to when the assessee firm started suspecting the culprit and as to how much time it look to get the correct amount of defalcation and then deal with the assessee's claim. At this juncture it is necessary to point out that Shri Kulkarni relied on the Board Circular which is in favour of the assessee. The Board Circular has considered the Supreme Court judgments reported at 34 ITR 10 and 56 ITR 1. The relevant portion of the Board Circular is as under: "In the light of the above decision of the Supreme Court, the legal posit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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