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2009 (8) TMI 777

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..... year 2004-05 against the order under section 143(3) of the Income-tax Act, 1961. 2. The only ground of appeal raised by the assessee is as under:- On the facts and in the circumstances of the case and in law, the CIT(A) Central-I erred in upholding the action of the Assessing Officer by rejecting the appellant s claim of business loss on account of embezzlement amounting to Rs. 3,92,15,599. The Assessing Officer may be directed to allow the said loss amounting to Rs. 3,92,15,559 in the year under appeal under section 28 or 37 of Income-tax Act, 1961. 3. The brief facts of the case are that the assessee-company before us was incorporated on 5-9-1994 as a result of joint venture between Aditya Birla Group and Sunlife Financial Services of Canada. The share capital of the company is owned equally by Birla Global Finance Ltd. and Sunlife (India) AMC Investments Inc. Canada, which in turn is the wholly owned subsidiary of Sunlife Financial Services Company Inc. Canada. The assessee is registered with SEBI under SEBI (Mutual Funds) Regulations, 1996 and the principal activity is to act as an Investment Manager to Birla Mutual Fund. The assessee is also registered under SEBI (Portfolio Ma .....

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..... ng standards issued by the ICAI. Copy of the computation of income is annexed at pages 1 to 4 of the paper book. The learned A.R. pointed out that vide letter dated 31-10-2006, a request was made to the Assessing Officer to allow the claim in the current assessment proceedings relying on the ratio laid down by the Bombay High Court in Bombay Forgings (P.) Ltd. v. CIT [1994] 206 ITR 5621 and the Kolkata High Court in Khaitan & Co. v. CIT [1979] 118 ITR 7282, where the respectable High Courts had held that the deduction for loss on embezzlement has to be claimed in the year in which the said loss was detected. Copy of the said letter dated 31-10-2006 is annexed at page 5 of the paper book. The learned A.R. for the assessee pointed out that the present year is the year of discovery and is the appropriate year of claim of embezzlement. The learned A.R. further pointed out that the IDBI Bank has also filed a suit for recovery against the bank and in case any amount is recovered by the assessee, the same would be offered to tax in the year of receipt. The learned A.R. pointed out that the assessee was offering portfolio management services and it was managing the services of M/s. TIF .....

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..... st the IDBI bank for recovery of loss due to fraud committed on the assessee-company. However, the Banking Ombudsman negatived the claim of the assessee and asked the assessee to pursue the matter with appropriate forum. Pursuant to the police complaint, the matter was investigated and the people involved were identified and were arrested. In the criminal complaint, charge sheet had been filed and the matter is sub judice before the court. As the discovery of the embezzlement was made during the year, the claim of the assessee is that it is entitled to the deduction on account of loss on account of embezzlement. 7. The assessee had made a provision on account of embezzlement loss totalling Rs. 3.92 crores to its profit and loss account. However, the same was added back to the profits of business while computing the income for the financial year 2003-04. The assessee in the notes to the computation of income had provided that the claim of loss may be considered at the time of finalisation of the assessment proceedings. The computation of income of the assessee for the year under appeal is annexed at pages 1 to 4 of the paper book. During the course of assessment proceedings, by way .....

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..... omplaint on 7-4-2003. Efforts were also made by assessee-company by way of lodging a compliant with Banking Ombudsman and SEBI vide letter dated 5-1-2003, copy of which are enclosed at pages 46 to 48 of the paper book. A communication has been received from Banking Ombudsman stating that complaint in this case has been closed. However, pursuant to the police complaint filed and the efforts being made by the assessee, the persons who had forged the signature were arrested and charges were framed against them. The charge sheet in the case has been filed before the crime branch. 9. On examination of the facts and circumstances of the present case, we find that the assessee before us was handling units worth of Rs. 7.5 crores belonging to M/s. TIFPL. The said units were redeemed by the assessee in February, 2003 and March, 2003. The redemption in February, 2003 appears to have been made in the name of M/s. TIFPL, a cheque was also issued in the name of M/s. TIFPL and the same has also been cleared in the name of M/s. TIFPL. The second redemption in March, 2003 has been credited to the account of M/s. TIFPL. However, in respect of the redemption in February, 2003, the claim of M/s. TIFP .....

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