TMI Blog2004 (10) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1961 (hereinafter referred to as the "Act") for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the trading loss of embezzlement was not allowable during the previous year ending on December 31, 1977, relevant to the assessment year 1978-79? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the disallowance of Rs. 11,474 under section 80VV?" Briefly stated the facts giving rise to the present reference are as follows: The present reference relates to the assessment year 1978-79. The applicant is a firm deriving income from the running of oil mill, khandsari business and the running of ice and cold storage plant. It maintains its accounts on calendar year basis. For its business, it maintains depots at various places including Calcutta, Cuttack and Haldwani. At Haldwani, the depot is utilized both as sales outlet and as purchasing agency. The depot is in the charge of a manager, assistant manager and an accountant. Some time in October 1977, the supplies of raw materials from the Haldwani depot, became irregular. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the various income-tax authorities. Out of the said amount the Assessing Officer allowed a sum of Rs. 5,000 and the balance of Rs. 15,876 was disallowed by invoking the provisions of section 80W of the Act. The appellant preferred an appeal before the Commissioner of Income-tax (Appeals) who accepted the plea and directed that the loss of Rs. 11,17,014 be allowed to it as it was a real loss and that there was no hope of recovering the same and that it was not necessary for allowing the said loss that conviction of the accused must result before the loss was allowed. He also deleted the aforesaid amount of Rs. 15,876 on the ground that it cannot be regarded as expenses for appearing before the income-tax authorities as it pertains to retainership, etc., and even if the expenses in question was not allowable under section 37 of the Act they would be allowable under section 28 of the Act. Feeling aggrieved by the said order the Revenue preferred an appeal before the Appellate Tribunal. The Tribunal had allowed the appeal of the Revenue by holding that even if the embezzlement had taken place but the extent of the embezzlement became known to the applicant only on July 7, 1979 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s if at all admissible as a business loss only in the assessment year 1980-81 and not during the assessment year 1978-79. He further submitted that under section 80VV of the Act the amount in excess of Rs. 5,000 paid towards the income-tax proceedings is liable to be disallowed and, therefore, the Tribunal has not committed any error in upholding disallowing of the embezzlement loss as also the sum of Rs. 15,876. Having heard learned counsel for the parties we find that it is now well settled by the apex court in the case of Badridas Daga v. CIT [1958] 34 ITR 10 that a business especially such as is calculated to yield taxable profits has to be carried on through agents, cashiers, clerks and peons. If employment of agents-is incidental to the carrying on of business, it must logically follow that losses, which are incidental to such employment, are also incidental to the carrying on of the business. Human nature being what it is, it is impossible to rule out the possibility of an employee taking advantage of his position as such employee and misappropriating the funds of his employer, and the loss arising from such misappropriation must be held to arise out of the carrying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f embezzlement was allowable as a business loss in the year in which it was discovered this court has held that the Tribunal was not justified in holding that the assessee's claim of loss was premature. The court had held that the proper course for the Tribunal was to go into the matter and record its finding on the said plea. In the case of Bombay Forgings (P.) Ltd. [1994] 206 ITR 562 the Bombay High Court has held that where the embezzlement had taken place during the relevant previous year 1975-76 and the same was duly reflected in the books of account by omission of the value of such goods from the sales as well as the closing stock of the assessee in preparation of the final accounts in such a situation, so far as loss was concerned, detection was not relevant. The loss caused to the assessee by embezzlement during the relevant previous year was allowable as deduction in the computation of the income in that previous year itself. Applying the principles laid down in the aforesaid cases to the facts of the present case, we find that even though the applicant has come to know about the embezzlement having taken place in its Haldwani depot some time in October, 1977, in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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