Misappropriation of funds by an employee led to the assessee ...

Employee Embezzlement Losses Deemed Deductible u/s 28(i), Not 37(1), Says Appellate Tribunal.

November 25, 2024

Case Laws     Income Tax     AT

Misappropriation of funds by an employee led to the assessee claiming expenses u/s 37(1) of the Act, which were later discovered to be embezzlement. The assessee suffered a loss due to the employee's fraudulent actions. The CBDT Circular No. 35-D states that losses arising from embezzlement are allowable u/s 28(i) of the Act. The revenue contended that the claim should be u/s 28 instead of Section 37(1). The assessee offered the recovered amount of Rs. 229 lakhs to tax but had not recovered the impugned amount during the assessment year. The addition was unjustified as the debited amount, though not fulfilling Section 37(1) expenses, was related to an allowable embezzlement loss. Relying on Bombay Forgings Pvt Ltd and G.G. Dandekar Machine Works Ltd cases, the assessee was eligible for deduction due to embezzlement loss. The Appellate Tribunal ruled in favor of the assessee as the revenue failed to prove recovery during the assessment year.

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