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2015 (10) TMI 469 - ITAT AHMEDABAD

2015 (10) TMI 469 - ITAT AHMEDABAD - TMI - Disallowance of alleged loss due to embezzlement suffered by the assessee - Held that:- As the very basic issue of admissibility of deduction in respect of the loss die to embezzlement is required to be, in the light of the above discussions, required to be decided afresh, we donot consider it appropriate to deal with other peripheral issues raised in the orders of the authorities below. Suffice to say that the matter will be decided afresh, uninfluence .....

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nable opportunity of hearing to the assessee. We consider it appropriate to clarify that, on merits, the assessee is at liberty to raise all such arguments as he may deem fit and proper.

For the reasons set out above, we once again remit the matter to the file of the Assessing Officer for fresh adjudication de novo, in terms of our directions above, inter alia in the light of the legal proceedings in respect of the embezzlement that the assessee claims to have suffered. With these dir .....

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) r.w.s. 147 and 250 of the Income Tax Act, 1961, for the assessment year 1991 -92. 2. Grievance of the assessee, in substance, is that the CIT(A) erred in upholding the disallowance of ₹ 5,16,480 in respect of the alleged loss due to embezzlement suffered by the assessee. 3. To adjudicate on this appeal, only a few material facts need to be taken of. It is a reopened assessment and the second round of proceedings before us. The assessee before us is a company engaged in the business of ma .....

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ioners manufactured or assembled by the assessee. These findings were based on, inter alia, statement of one K B Thakkar recorded by the DDIT and it was this statement which was foundational material supporting the allegation of bogus purchases. The case against the assessee thus was that a part of the purchases booked in the accounts of the assessee was bogus purchases and the payments made by the assessee by cheques were returned to the assessee in cash. The assessee had repudiated these alleg .....

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r himself who was managing affairs of the assessee company. The loss corresponding to these bogus purchases was thus caused to the assessee, as per the assessee, by misappropriation of funds by K B Thakkar. The assessee claimed the deduction in respect of such loss, which so far as this assessment year was concerned, was ₹ 5,16,480. When the matter reached the Tribunal, a coordinate bench of this Tribunal, vide order dated 11th November 2005, remitted the matter back to the Assessing Offic .....

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deduction, that even if loss is accepted to have arisen, it could be allowed as deduction only when it is irrecoverable whereas right now matter is sub judice and the embezzled monies, even if any, cannot be said to be fully unrecoverable. A reference was then made to the findings in the first round of proceedings wherein it was said to have been held that the assessee was all along aware about the bank accounts which were allegedly used for embezzlement and that it is unbelievable that the com .....

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ing the contentions of the assessee, learned CIT(A) held as follows: I have considered the facts of the case and the submissions of the appellant. I donot agree with the views of the appellant. I find that the AO has given proper opportunity of being heard, as also given copies of the statements recorded earlier and paper book filed, as directed by the Hon ble ITAT. Hence, the appellant s submission in this regard is rejected. Further, from the discussions made by the AO in the assessment order .....

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n of purchases in its accounts. Fact remains that the amount being deposited in these bank accounts opened in the name of the employees were being withdrawn from time to time and being handed over to SVS (Sunil V Shah, a director of the company), as stated by the KBT (K B Thakkar, a former business associate who was said to be handling all the accounts and tax matters and who had given a statement against the assessee), which was a continuous process. It cannot be said that th assessee company k .....

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he sense that the assessee company was fully aware of the fact that cheques being deposited into account which was introduced by its own director. Otherwise also, the books where the entries were made were in possession of the company even after the entries have been made. Statement of Gautam Dalal, who happened to be an employee of the company, corroborated this. In view of the above discussions, all the grounds of appeal are hereby rejected. 5. The assessee is aggrieved of the stand so taken b .....

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reached finality. This approach is clearly fallacious. When the assessment order passed by the Assessing Officer in the first round has been remitted, to the file of the Assessing Officer, by the coordinate bench on the ground that it has been passed without confronting the assessee with the certain statements recorded by the investigation wing, all the findings in that assessment order cannot be treated to have achieved finality. There was no occasion for the Tribunal to adjudicate on these fin .....

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f the order nor has the Tribunal dealt with the merits of the matter. There cannot be a deemed approval of any findings of the AO or the CIT(A) when the Tribunal has not even examined that aspect of the matter. There is no material before us to come to a definite conclusion, as has been arrived by the CIT(A), that the assessee had full knowledge of the bank accounts being used to siphon funds and for booking bogus purchases and that the assessee or Sunil V Shah were involved in receiving cash in .....

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ainst the assessee. All the surrounding factors, including stand of the assessee as also the proceedings initiated by the assessee, as indeed the circumstances under which such proceedings are initiated and the allegations of K B Thakkar, are also to be examined in a holistic manner to come to a conclusion on this issue. As for the reference having been made to the observation made by the coordinate bench in order dated 11th November 2005 to the effect that the fact remains that the name of the .....

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on of principles of natural justice. First, we shall deal with the plea of the learned counsel that reassessment proceedings are bad in law. We are unable to agree with this proposition of the learned counsel as sufficient (for the purpose of reopening the assessment) material has come on the record to come to a reasonable belief that the assessee was indulging in bogus purchases. Whether it was at the behest of the assessee or network of an employee, that is altogether a different aspect (but t .....

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, and, in our humble understanding, this observation cannot be put against the assessee on merits. There are no independent findings in the impugned assessment order or the order of the CIT(A), but yet the CIT(A) proceeds on the basis that the assessee was fully aware of the bogus purchases and dubious transactions but then, as pointed out earlier, there is no independent finding about the reasons of proceeding on this basis. The CIT(A) cannot simply refer to the findings in the first round of p .....

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certain civil and criminal proceedings but these proceedings have not reached finality as yet. None of the authorities below has dealt with or analysed any of these documents. We have also noted that, during the course of the proceedings before us, it was vehemently contended by the learned Departmental Representative that either the income should be taxed in the hands of the person, who is alleged to have embezzled the monies, or deduction for the embezzlement should not be allowed in the case .....

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ty, and, therefore, such a non-taxability, by itself, cannot be reason enough to decline the deduction in the hands of the person suffering the embezzlement loss. The plea canvassed by the learned Departmental Representative, howsoever appealing it may seem to be at the first sight on the ground of equity, lacks legally sustainable merits. We make it clear that the taxability or nontaxability of income on account of embezzlement, even if any, in the hands of the person who is alleged to have, or .....

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