TMI Blog1948 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject matter of the appeal before the Tribunal did not embrace all the points that are involved in these two questions. As for instance, the profits revealed by the books in the yarn account were not accepted and, in consequence, an estimate was made by the Income-tax Officer. The rejection of the book version and the additions made in this account did not form the subject-matter of the appeal to the Tribunal. But Mr. Mohanti, appearing in support of the application, submits that these two questions really relate to a sum of ₹ 13,291 which was added to the business profits declared by the assessee. We, therefore, proceed to deal with the questions on this footing. The assessee deals in yarn and arhatdari. He also derives some income from money-lending, although it is a small part of his business. Only one set of accounts is maintained for all these activities. The Income-tax Officer found that the account books produced by the assessee were not complete in that they did not reflect all his business activities. In the result, he added a sum of ₹ 13,291 to the profits of the business, including the money-lending, as computed by him. The Appellate Assistant Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation for not showing this as a subsisting debt in his books was not accepted by the Tribunal, which observed that there is little substance in this explanation and, indeed, it is not uncommon to find some such explanation whenever a transaction outside the books is detected. The Tribunal also remarked that it was not possible for the Income-tax authorities to trace all such omissions. The instance given by them was merely illustrative and not exhaustive. And the Tribunal came to the definite conclusion that it was not possible to hold that the accounts maintained by the assessee reflected all the transactions and agreed with the findings of the Income-tax authorities that the books contained a loophole for diverting a portion of the income. On this finding the estimated addition of ₹ 13,291 (which, in the opinion of the Tribunal, did not appear to be excessive or unfair) was upheld. In our opinion the question of whether the accounts produced by an assessee are reliable or not is essentially a question of fact. The matter is concluded by the finding of fact that the accounts were not complete and did not reflect all the business activities of the assessee. No question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and its theft, in the circumstances stated above, constituted a trading loss which had to be brought into account in ascertaining the taxable profits under Section 10(1) of the Act. The Bench agreed with the view that, irrespective of clause (ii) of Section 10(2) of the Act, a trading loss must be taken into account, in computing the profits and gains of a business under Section 10(1). It was, however, pointed out by the Bench that a loss in order to be allowed must satisfy two conditions; first, it must be a loss of part of the stock-in-trade of the business and secondly, it must be a loss of such a kind as is incidental to the business. On this part of the case the Bench came to the following conclusions:- There is no evidence that the money kept in the safe was the stock-in-trade of the money-lending business. Indeed, the extent of the money-lending business as compared to the assessee's other business would indicate that it was the assessee's capital meant to be utilized in trading business, rather than the stock-in-trade of the small money- lending business. In any case there is no ground for presuming that the whole of the money contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax, Bihar Orissa#, and L.N. Gadodia, In re##. In the result the Tribunal came to the conclusion that the assessee's claim to have the loss by theft deducted in the computation of his business profits, could not succeed. 6. In our opinion a question of law does arise out of the Tribunal's order disallowing the assessee's claim in respect of the sum of ₹ 8,675 which was sought to be deducted from the business profits. And we consider that the question should be framed thus:- Whether, in the circumstances of the case, the sum of ₹ 8,675 is allowable either as a trading loss or as an expenditure laid out or expended wholly and exclusively for the purposes of the business within the meaning of Section 10(2)(xii) of the Act? Both the parties agreed that in case we decided to make a reference, the question should be put in the form in which it has been done by us. 7. Under Section 66(1) of the Act, we therefore refer the following question for the opinion of the Honourable High Court:- Whether, in the circumstances of the case, the sum of ₹ 8,675 is allowable either as a trading loss or as an expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that a sum embezzled by an employee in the course of the business was a loss incidental to the conduct of the business and should be deducted in calculating the assessable income. The correctness of this decision has been doubted in a later Patna decision reported in Messrs. Mulchand Hiralal v. Commissioner of Income-tax**, where the facts found were that some of the money of the assessee was stolen from an employee of the assessee while it was being sent to the bank. But the loss did not occur in the year of accounting and consequently it was unnecessary to consider whether the loss was deductable from the total profits. Therefore the observations of the learned Judges regarding the correctness of Jagarnath Therani v. Commissioner of Income-tax* were admittedly in the nature of obiter dicta. In the present case, however, it is unnecessary to consider which of the two views is correct because even on the basis of the earlier Patna decision, Jagarnath Therani v. Commissioner of Income-tax*, Mr. Mohanti's contention cannot be supported. It cannot be said that the theft which occurred after the close of the shop was committed by the accountant in the course of his employment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, however, held that the theft could not be said to be a loss incidental to the conduct of the business. For the purposes of this case, however, it is not necessary to discuss the relative merits of minority view and the majority view. It is sufficient to note that from the facts as found it cannot, by any stretch of imagination, be held that the theft of the money by the employee was a loss incidental to the business of the assessee. That is to say, such a loss cannot be regarded as likely to occur having regard to the peculiar risks attendant upon the conduct of the business of the assessee. Mr. Mohanti next contended that so far as the money-lending portion of the business of the assessee is concerned a portion of the sum that was stolen must be held to be part of the stock-in-trade and deduction should be allowed for the sum. But on this question we are bound by the finding on facts arrived at by the Tribunal. The finding is as follows:- There is no evidence that the money kept in the safe was the stock-in-trade of the money-lending business and not his capital. I would, therefore, answer the question in the negative and say that the sum of ₹ 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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