TMI Blog2017 (11) TMI 1346X X X X Extracts X X X X X X X X Extracts X X X X ..... EMBER AND SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER For The Assessee : Shri Piyush Chaturvedi For The Revenue : Shri Ram Tiwari ORDER PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals) -17, Mumbai dated 29.01.2015 for the Assessment Year 2010-11. 2. Revenue in its appeal raised the following grounds: - 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of ₹.1,08,80,401/- on account of bogus purchases by holding that the loss on account of embezzlement is an allowable loss without appreciation that the said loss was not wholly and exclusively incurred for the purpose of business within the meaning of Sec.37(1) of the I.T. Act. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of ₹.15,32,573/- on account of travelling expenses by holding that the loss on account of embezzlement is an allowable loss without appreciation that the said loss was not wholly and exclusively incurred for the purpose of business within the meaning of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by them. It was submitted that these fraudulent employees have not only removed, destroyed various documents and supporting s but also tried to siphon off the funds by making false provisions in the books of the assessee company and wherever the management could found such excess/inappropriate provisions the same were reversed in subsequent years in the books and offered for tax u/s. 41(1) of the Act. It was further submitted that as far as the assessee company is concerned it is a loss caused by embezzlement during the course of carrying on its business and as such is allowable deduction u/s. 37(1) or as business loss u/s. 28 of the Act. 5. However, not convinced with the submissions of the assessee the Assessing Officer made addition of ₹.1,08,80,401/- in respect of purchases recorded from four parties mentioned at Page No.6 of the Assessment Order treating them as bogus purchases. According to the Assessing Officer the assessee could not prove the genuineness of the purchases made from those parties since according to him those parties were providing only accommodation entries without transportation of goods as found out by the Sales Tax Department in their investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the Ld. AR of the appellant and also carefully gone through the facts and records. The appellant during the course of the assessment proceeding filed a copy of FIR and the first chargesheet filed by the police authority in the court of Metropolitan Magistrate, 19th Court, Esplanade, Mumbai under the purview of EOW, Mumbai, against a lady accused namely Saumyalata Shyama Shetty, being employed as General Manager (Commerce and Finance) in the aforesaid companies and in such capacity being entrusted with and having dominion over the funds of the company by way of being authorized signatory for operating the bank accounts of the company has committed mentioned offences in the charge sheet. It was clearly brought out in the charge sheet that she had signed fraudulently cheques the details of which were given in the charge sheet itself. It was also stated in the chargesheet that with a dishonest intention the said employee produce forged Board Resolution of the Company and other documents of Haldyn Glass Ltd to Tata Capital Ltd. and use them as genuine and thereby fraudulently obtained vehicle loan of ₹ 44,65,000/- for purchase of the Mercedes Benzh E 350 bearing the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellants are of such nature as being purchased on day to day basis and the same has been also included in the normal receipt register and are included a part of the closing stock. Further it is also a fact that as against the discovery made by the police authorities of the fraud of ₹ 3.30 crores the Ld.AO could unearth a bogus bill of. 1.08 crores indicating therein that the remaining bogus bills of more than 2 crores have been allowed by him which means that a part of the fraud committed by the employees stand allowed to the appellant without it being discovered by the Ld.AO during the course of assessment proceeding. Further, as against the four parties the bills of which have been suspected as bogus bill based on the information of Sale Tax Department, the police authorities could discover 13 parties as mentioned above which clearly proves that the fraud committed is much more than what has been discovered by the L.d.A0 based on the information of the sales tax authorities. 3.3.3. Having come to the conclusion that a fraud has been committed on the appellant by its own employee who have been entrusted with the work by the management of the company and fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and exigencies of that business, but the assessee is company which cannot act in its own person, for it has no physical personality. It can only act through an agent, be he the director or anyone else. Then again, the share capital of the company was held partly by P and partly by the trust for his benefit. P who was, also a director of the company was at all material times residing out of India and, therefore, there was no option for the company save to appoint an agent for carrying on its, business activities in India. The employment of an agent was, therefore, incidental to the carrying on of its business in India. The company appointed A as agent for its business in 1929, which-was four years after he joined the company. In 1931, he became a director of the company but that did not affect his position as an agent of the company one way or the other. He discharged his duties honestly and faithfully till 1943- in any case there is nothing to indicate to the contrary. In 1943, he embezzled a large amount during a span of about nine months. He withdrew the amount as if the withdrawal was for. the purpose of the business of the company and then pocketed it. In other words, he wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thdrawn by some unknown person which resulted in a loss to the assessee to that extent. Looking from a businessman's angle, it is difficult to hold that such a loss is not incidental to the business of the assessee. It is difficult to draw a distinction between embezzlement of the amount from the bank and theft of the amount from the cash box of the businessman from his sales counter or business premises. What is material is whether the loss was caused to the assessee in the course of his business activity and closely connected with his business. If that is so, it will be an allowable deduction in computing the profits . in the instant case, it is so and that being so, the loss suffered by the assessee is clearly a loss which is deductible in the computation of income under s 28(i) of the Act 3.3.6 In view of the foregoing, it is evident that the loss has been caused to the appellant by its employees during the course of the appellant business. It is a trite law that loss by misappropriation by employees in the course of business is an allowable loss. It is also equally trite law that the act of fraud is punishable in the competent court of law on the basis of charges fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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