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2016 (9) TMI 958 - ITAT CHENNAI

2016 (9) TMI 958 - ITAT CHENNAI - TMI - Disallowance on account of embezzlement of cash by an employee - Held that:- For the purpose of claiming a debt as bad, the conditions prescribed u/s 36(2) of the Act have to be complied with. In the case before us, the conditions prescribed u/s 36(2) of the Act were not complied with, therefore, the claim of the assessee cannot be allowed as bad debt. However, it is a loss suffered in the course of business activity and it is inevitable loss in the hands .....

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of the lower authorities are set aside and the Assessing Officer is directed to allow the embezzled cash of ₹ 1,86,24,839/- by Shri Arumugamswamy as business loss. - Addition towards excess stock - Held that:- During the course of search operationo, the Revenue authorities found excess stock in the showroom of the assessee. Both the assessee and the Revenue valued the excess stock by reducing the gross profit margin from MRP value of the stock available at the end of the financial yea .....

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iscussion, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly, the same is confirmed. - Addition on account of fall in gross profit rate - Held that:- It is not in dispute that the assessee has offered excess stock of ₹ 2,36,39,742/- for taxation. This excess stock is nothing but profit of the assessee. Therefore, this excess stock has to b .....

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essing Officer. This Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly, the same is confirmed. - I.T.A.No.2202/Mds/2015 - Dated:- 11-8-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Assessee : Shri K.M.Mohandass, CA For The Department : Shri Supriyo Pal, JCIT ORDER PER N.R.S.GANESAN, JUDICIAL MEMBER Both the appeal of the assessee and the Revenue are directed against the same order of the Commissioner of .....

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; Loss Account as bad debt. The assessee explained before the Assessing Officer that one Shri Arumugamswamy, a former employee of the assessee had embezzled cash to the extent of ₹ 1,86,24,839/- during the assessment year 2007-08 which was not written off during that assessment year, therefore, it was written off during the year under consideration. The assessee explained before the Assessing Officer that the said Shri Arumugamswamy was also one of the Director of the company representing .....

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d a criminal complaint before the Metropolitan Magistrate for embezzlement of cash. Since the assessee-company could not recovered the embezzled amount inspite of civil and criminal prosecution initiated against Shri Arumugamswamy, the net embezzled amount of ₹ 1,86,24,839/- was written off in the books of account as bad debt. According to the ld. Representative, the said amount of ₹ 1,86,24,839/- was taken as income in the earlier assessment years. Merely because the assessee used t .....

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l, ld. Departmental Representative submitted that the assessee claimed the said amount embezzled by the employee as bad debt. Referring to sec. 36 of the Income-tax Act, 1961, the ld. DR submitted that the conditions for claiming the bad debt were not complied with, therefore, the claim of the assessee cannot be allowed as bad debt. Hence, the CIT(A) has rightly confirmed the disallowance made by the Assessing Officer. 5. We have considered the rival submissions on either side and also perused t .....

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or consideration is when there was an embezzlement of cash by the employee of the assessee in the course of the business activity whether it could be allowed as a bad debt or not? For the purpose of claiming a debt as bad, the conditions prescribed u/s 36(2) of the Act have to be complied with. In the case before us, the conditions prescribed u/s 36(2) of the Act were not complied with, therefore, the claim of the assessee cannot be allowed as bad debt. However, it is a loss suffered in the cour .....

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ld the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the embezzled cash of ₹ 1,86,24,839/- by Shri Arumugamswamy as business loss. 6. Now coming to the Revenue s appeal, the first issue arises for consideration is addition of ₹ 88,76,731/- towards excess stock. 7. Shri Supriyo Pal, the ld. DR submitted that the Assessing Officer found excess stock of ₹ 59,78,471/- during the course .....

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as worked out to ₹ 7,52,66,952/- by reducing the average gross profit from the value of physical stock. Accordingly, the deficient stock was worked out to ₹ 62,74,289/-. After considering the closing stock as per the tally account, the stock found at the time of search operation was to the extent of ₹ 7,52,66,952/-. However, the closing stock as per the books of account was only to the extent of ₹ 4,27,50,479/-. The Revenue authorities found excess stock of ₹ 3,25,1 .....

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ee valued the closing stock at the end of every financial year after reducing gross profit. According to the ld. Representative, the closing stock was valued by reducing the gross profit margin from the MRP value of the stock available at the end of the financial year. The aggregate tag price of the stock on the date of search was computed at ₹ 8,75,19,712/- and the cost price of the physical stock was ₹ 7,52,66,952/- after reducing the margin of 14% on the tag price. The ld. Represe .....

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he actual figure of ₹ 1,48,54,638/-. Since the assessee has already offered a sum of ₹ 2,36,39,742/- towards excess stock, there cannot be any further addition. Therefore, the CIT(A) has rightly deleted the addition made by the Assessing Officer. 9. We have considered the rival submissions on either side and also perused the material available on record. During the course of search operationo, the Revenue authorities found excess stock in the showroom of the assessee. Both the assess .....

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3,25,16,473/-. Therefore, this Tribunal is of the considered opinion that the addition of ₹ 88,76,731/- is unwarranted. In view of the above discussion, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly, the same is confirmed. 10. The next issue is with regard to addition of ₹ 1,48,54,638/- on account of fall in gross profit rate. 11. Sh .....

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cial year. When the assessee is valuing the closing stock based upon the gross profit rate, according to the ld. Representative, the assessee cannot go beyond certain limit which was admitted in the earlier assessment years. The ld. DR further submitted that value of closing stock is the basis for determination of gross profit in any trade. In the case of the assessee, it is in the reversed trend. Therefore, reduction in the gross profit ratio for the current year gives suspicion. According to t .....

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ell as gross profit. The ld. DR further submitted that the CIT(A) has not examined the fact of addition to gross profit and closing stock while deleting the addition made by the Assessing Officer. As per the calculation made before the Assessing Officer, the gross profit rate worked to 17.15%, however, as per the calculation submitted by the assessee before the CIT(A), it works out to 21%. Therefore, the CIT(A) ought not to have deleted the addition made by the Assessing Officer. 13. On the cont .....

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