KAPOOR AGENCIES PRIVATE LIMITED,KANPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, RANGE-6, KANPUR

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ITA 20/LKW/2019Status: DisposedITAT Lucknow30 October 2026AY 2014-156 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal considered the facts and arguments. It noted that the FIR was lodged regarding missing stock, and subsequently, the FIR was quashed due to a settlement with the accused. However, prior to this, M/s Macleods Pharma Ltd. had entered into an agreement dated 17.05.2014, acknowledging the missing stock and agreeing to recover Rs. 66,95,852/- from the assessee. The Tribunal observed from the ledger accounts that M/s Macleods Pharma Ltd. was adjusting amounts from the security deposit and dues to the assessee during the relevant Assessment Year. Thus, it appeared that the assessee did incur a loss for which compensation was paid to M/s Macleods Pharma Ltd. However, the extent of payment was not evident, and the agreement dated 17.05.2014 had not been verified by the lower authorities. Therefore, the Tribunal deemed it appropriate to restore the matter to the file of the AO for the limited purpose of verifying this agreement and ascertaining the amount of recovery made by M/s Macleods Pharma Ltd. during the concerned AY, before determining the deductible expenses. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, Kapoor Agencies Pvt. Ltd., is in appeal against the order of the CIT(A)-1, Kanpur, dated 02.11.2018, which upheld the disallowance of Rs. 66,95,982/- claimed as loss on account of theft. This disallowance was made by the DCIT, Range-6, in an order under section 143(3) for Assessment Year 2014-15. The assessee had debited this amount in its Profit & Loss account. The Assessing Officer (AO) found the assessee's justification, which included an FIR against employees and a subsequent settlement leading to the quashing of the FIR by the Allahabad High Court, to be unsatisfactory. The AO noted that the settlement deed mentioned no evidence found against the accused, rendering the genuineness of the theft claim unverified. The assessee failed to provide further documentary evidence, leading to the addition of the amount to its income. The CIT(A) also dismissed the appeal, finding no justification for the claim.

What were the issues?

1. Whether the assessee appellant furnished sufficient justification/explanation in support of its claim of loss on account of "THEFT" from the Godown, considering the evidence filed during assessment proceedings (Section 37 of the Income Tax Act, 1961). 2. Whether the assessee appellant lodged an FIR against the claim of Loss on account of "Shortage of Goods" returned to the Supplier Company, either being "Expired Medicines" or medicines with a very short expiry date, which were acknowledged by the supplier Company (Section 37 of the Income Tax Act, 1961). 3. Whether the claim of the Appellant for loss was rejected on flimsy grounds (General ground challenging the CIT(A)'s order). 4. Whether the Appellant offered any explanation to show that the Loss was incurred for the purposes of Business (Section 37 of the Income Tax Act, 1961). Assessee's Contentions: The assessee argued that it is a clearing and forwarding agent and a theft of stock was noticed in its godown. An FIR was filed against employees. Due to threats, the assessee was forced to settle with the accused, leading to the quashing of the FIR. However, a subsequent settlement agreement dated 17.05.2014 with M/s Macleods Pharma Ltd. (the principal company) showed that the loss was indeed incurred, with Rs. 28,00,000/- of security deposit adjusted and a right for M/s Macleods Pharma Ltd. to deduct Rs. 3,50,000/- per month from the assessee's commission until the outstanding amount was recovered. The assessee relied on pages 17-24 of its Paper Book, including the settlement agreement and ledger account, to demonstrate the loss. Revenue's Contentions: The Revenue argued that the settlement agreement between M/s Macleods Pharma Ltd. and the assessee was never submitted before the lower authorities. The AO had explicitly stated that the assessee failed to furnish further documentary evidence beyond the FIR and the settlement with the accused. The Revenue contended that this agreement required examination and verification at the AO's level and prayed for the matter to be restored to the AO.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 271(1)(c),Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, LUCKNOW “B” BENCH, LUCKNOW

For Respondent: Smt. Pratibha Singh, Addl. CIT- DR
Hearing: 14.10.2026Pronounced: 30.10.2026

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW “B” BENCH, LUCKNOW BEFORE SH. KUL BHARAT, VICE-PRESIDENT AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.20/Lkw/2019 A.Y. 2014-15 Kapoor Agencies Pvt. Ltd., DCIT, Range-6, 14/116-B. Civil Lines, Income Tax Office, Kanpur, vs. Vaibhav Building, 1st Floor, Uttar Pradesh-208001. 15/295, Civil Lines, Kanpur, Uttar Pradesh-208001. PAN: AAAACK8090R (Appellant) (Respondent) Assessee by: Sh. Rakesh Garg, Advocate Revenue by: Smt. Pratibha Singh, Addl. CIT- DR Date of hearing: 14.10.2026 Date of pronouncement: 30.10.2026

O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A)-1, Kanpur dated 02.11.2018, wherein the learned ld. CIT(A) has dismissed the appeal of the assessee, that was filed against the order under section 143(3) of the Income Tax Act, 1961 (the Act), for the AY 2014-15 dated 28.11.2016. The grounds of appeal are as under :- “1. The Learned C.I.T. (APPEALS) erred on facts & circumstances of the case in holding that the Assessee appellant did not furnish any further justification/explanation in support of its claim of loss on account of "THEFT" from the Godown of the company ignoring the evidences already filed on record by the Appellant during the course of assessment proceedings.

ITA No. 20/Lkw/2019 Kapoor Agencies Pvt. Ltd. 2. The Learned C.I.T. (APPEALS) erred on facts & circumstances of the case in holding that the Appellant did not lodge any F.I.R. against the claim of Loss on account of "Shortage of Goods" returned to the Supplier Company either being "Expired Medicines" or the medicines which were having very short expiry date received by the appellant which were duly acknowledged by the supplier Company. 3. The Learned C.I.T. (Appeals) REJECTED THE CLAIM OF THE Appellant on flimsy grounds. 4. The Ld. C.I.T. (Appeals) erred on facts & in law in holding that the Appellant did not offer any explanation to show that the Loss was incurred for the purposes of Business 5. That the order dated 02-11-2018 passed by the Ld. C.I.T. (Appeals) is arbitrary, illegal bad in law, not base on the facts of the case liable to be quashed.”

2.

The facts of the case are that from perusal of the P & L Account, the ld. AO observed that the assessee had debited a sum of Rs. 66,95,982/- on account, “Theft”. He requested the assessee to furnish details of the loss claimed and necessary justification/explanation for allowability of the same along with complete documentary evidences. In response, the assessee furnished a copy of FIR dated 03.04.2014, a copy of joint affidavit in respect of settlement of criminal case dated 07.08.2014 and a copy of the order of the Hon’ble Court in respect of such settlement. The ld. AO considered the submission of the assessee-company but did not find it satisfactory. He noted that the Director of the company had lodged an FIR against some employees of the company on 03.04.2014 but thereafter, vide joint affidavit dated 07.08.2015, both parties had settled the case and requested before the Hon’ble Allahabad High Court to quash the FIR dated 03.04.2014. The Hon’ble High Court vide its order dated 12.08.2015 had quashed the said FIR by observing that the dispute between the parties had been settled outside the Court and the informant/respondent, did not propose to proceed any further against the petitioners. The ld. AO noticed that in the settlement deed dated 07.08.2015, it has also been mentioned that no evidence was found

ITA No. 20/Lkw/2019 Kapoor Agencies Pvt. Ltd. against the person against whom the FIR had been lodged. From the same, the ld. AO concluded that the genuineness of the claim, of “Loss on theft” were still unverified. Therefore, he asked the assessee to justify the same. The assessee was unable to submit any further documentary evidence in this regard and therefore, the ld. AO added back a sum of Rs. 66,95,982/- on this account. Penalty proceedings were initiated under section 271(1)(c) of the Act. 3. Aggrieved with the said assessment order, the assessee filed an appeal before the ld. CIT(A)-1, Kanpur. The ld. CIT(A) considered the submissions of the assessee and the order of the ld. AO and came to conclusion that there was no justification/explanation for the said claim. Therefore, Rs. 66,95,982/- claimed as, “Loss on theft” was rightly disallowed. He held that facts as given in the assessment order had not been rebutted by the assessee in the appellate proceedings and in the absence of any fact or evidence to show that the loss actually happened, the same could not be allowed. 4. The assessee is aggrieved by this summary dismissal of its appeal by the ld. CIT(A) and has accordingly come before us. 5. Sh. Rakesh Garg, Advocate appearing on behalf of the assessee [hereinafter referred to as ‘ld. AR’] submitted that the assessee is clearing and forwarding agent of M/s Macleods Pharma Ltd. It receives commission, handling charges, storage charges etc. from the company for which the assessee works as clearing and forwarding agent and marketing agent. It was submitted that a theft was noticed of some stock during the course of checking of stock of goods stored in the Godown. Immediately an FIR was filed with the local police against the employees who were working in the Godown looking after the receipt and delivery of goods. The assessee 3

ITA No. 20/Lkw/2019 Kapoor Agencies Pvt. Ltd. company in compliance of queries made during the course of hearing filed the details of all the expenses including loss on account of theft. It was submitted that on account of the fact that the assessee was threatened by the parties against whom the FIR had been filed, the assessee was forced to reach a settlement with them on 07.08.2015. Subsequently the concerned parties had moved the Hon’ble High Court and got the FIR quashed. However, this did not detract from the fact that the assessee had made a loss because on 17.05.2024, the assessee was required to enter into a settlement with the company (M/s Macleods Pharma Ltd.) and the company recovered the amount and missing of goods from the assessee. Thus, it was submitted that the assessee having incurred the loss, there being no doubt with regard to the same, the same should have been allowed as a permissible deduction while computing the income of the assessee. The ld. AR invited our attention to page 21 to 24 of PB filed on 13.10.2026 which contained a copy of the settlement agreement entered into between the M/s Macleods Pharma Ltd. and the assessee on 17.05.2014, to demonstrate that Rs. 28,00,000/- on security deposit had been adjusted immediately by M/s Macleods Pharma Ltd. and M/s Macleods Pharma Ltd. also received the right to deduct Rs. 3,50,000/- per month from the commission due to the assessee till the time, the outstanding amount of loss on pharmaceutical products could be recovered. The ld. AR further submitted that the details of how the recovery had been taken place were reflected on page 17 of the PB which reflected the ledger account of M/s Macleods Pharma Ltd. He accordingly, prayed that in view of this fact of loss to the assessee, the deduction claimed by the assessee on account of, “Loss due to theft” should be allowed.

ITA No. 20/Lkw/2019 Kapoor Agencies Pvt. Ltd.

6.

Smt. Pratibha Singh, Addl. CIT- DR submitted that this agreement between M/s Macleods Pharma Ltd. and the assessee had never been submitted before the lower authorities because there was no reference to the same in the order of the ld. CIT(A) and the ld. AO had categorically mentioned that the assessee had failed to furnish any further documentary evidence other than the FIR and the settlement of agreement /High Court order with respect to the settlement with the person against whom the FIR had been filed. She submitted that before this agreement could be considered as a just basis to allow the deduction to the assessee, it required examination and verification at the level of the ld. AO. Accordingly, she prayed that the matter may be restored to the file of the ld. AO for further verification of this issue. 7. We have duly considered the facts and circumstances of the case and the arguments advanced by both the parties. From a perusal of the order of the Hon’ble Allahabad High Court, it appears that FIR dated 03.04.2014 was lodged by the assessee at Police Station Chakeri, District-Kanpur and perusal of this FIR shows that it was with regard to discovery of missing stock in the Godown of the assessee for which certain persons mentioned in the said FIR were held to be responsible. However, subsequently it appears that on 07.08.2015 an agreement was arrived at between the assessee and the accused in the said FIR and correspondingly the employees moved the High Court for quashing of the said FIR in view of this settlement which the High Court agreed to vide its order dated 12.08.2015. However, prior to this M/s Macleods Pharma Ltd. had, vide agreement dated 17.05.2014, taken note of the missing stock of its goods and had entered into an agreement for recovery of the amount of Rs. 66,95,852/- from the assessee on this account.

ITA No. 20/Lkw/2019 Kapoor Agencies Pvt. Ltd. It appears that from perusal of the ledger account on page 17, 18, 19 and 20 of the PB that M/s Macleods Pharma Ltd. was adjusting the amount from the security placed with the said company and the amounts due to the assessee, during the course of the AY. Thus, it appears that the assesse did incur a loss on account of missing goods for which it was, required to make compensation to M/s Macleods Pharma Ltd. However, the extent of payment made is not evident from the accounts submitted before us and the agreement dated 17.05.2014 has not been verified by the authorities below. Accordingly, considering the facts of the case, we deem it appropriate to restore this matter back to the file of the ld. AO for the limited purpose of verifying this agreement between M/s Macleods Pharma Ltd. and the assessee and ascertaining the amount of recovery made by M/s Macleods Pharma Ltd. during the concerned AY, before determining the amount of deductible expenses on this account. Accordingly, the matter is restored to the file of the ld. AO.

8.

In the result, the appeal of the assessee is held to be allowed for statistical purposes. Order pronounced on 30.10.2026 in the open Court.

Sd/- Sd/- [KUL BHARAT] [NIKHIL CHOUDHARY] VICE-PRESIDENT ACCOUNTANT MEMBER DATED: 30/10/2026 SK, Sr. PS Copy forwarded to: 1. Appellant – 2. Respondent – 3. CITDR , ITAT, 4. CIT, 5. The CIT(A) By order SHARWAN Digitally signed by SHARWAN KUMAR KUMAR Date: 2026.11.02 12:08:09 +05'30' Sr. P.S.

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