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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-1, Coimbatore dated 27.02.2017 in Appeal No.107/15-16 for the assessment year 2012-13 passed U/s.250(6) r.w.s. 143(3) of the Act.
There is a delay of 5 days in filing the appeal by the Revenue.
The Ld.DCIT has furnished an affidavit before us stating that the delay had occurred due to the time lag of the files in transit from higher authorities. It was therefore pleaded that the short delay in filing the appeal may be condoned. The Ld.AR objected to the submission of the Ld.DR. However, after hearing both sides, though we do not appreciate the lethargic attitude of the Revenue, in the interest of justice we are of the considered view that the short delay in filing the appeal requires to be condoned. Accordingly we hereby condone the delay of 5 days in filing the appeal by the Revenue and proceed to hear the case on merits.
The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in granting deduction to the assessee for Rs.93,53,800/- on account of loss arising out of embezzlement of cash by the staff of the assessee company by holding it to have occurred during the course of the business of the assessee.
The brief facts of the case are that the assessee is a limited company engaged in the business of manufacturing of sugar, alcohol, granite and co-generation of power, filed its return of income for the assessment year 2012-13 electronically on 21.09.2012, admitting total income of Rs.29,41,53,510/- under normal provision and Rs.112,36,96,670/- under Section 115JB of the Act. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny under CASS and notice U/s.143(2) of the Act was issued on 08.08.2013. Finally the assessment order was passed U/s.143(3) of the Act on 31.03.2015, wherein the Ld.AO made several disallowances amongst them one of the disallowance was towards the claim of deduction of Rs.94,33,655/- towards write-off of the provision made on account of embezzlement of cash by an employee (Rangasamy) of the assessee company.
During the course of scrutiny proceedings, it was observed by the Ld.AO that the assessee company has written-off an amount of Rs.94,33,655/- shown as provision no longer required under the head ‘other expenses’. On query the assessee company filed the following submissions before the Ld.AO:-
“Note on Expenses: During the course of assessment hearing a clarification has been sought in regard to allowability of loss claimed on account of embezzlement of amount of Rs.94.34 lakhs by an employee (Rangasamy). The employee misappropriated the money advanced to him during the course of regular business activities of the company. Since, he neither returned the money nor rendered the accounts to the account for expenditure, the management of the company lodged a police and an FIR also registered against him and the case is still pending.
Since, the loss arouse in the course f carrying on of normal business activities the same has been claimed as business expenditure u/s 37. The conditions stipulated u/s.37 also are fully complied with.
We rely on the decision of Punjab and Haryana High Court in the case of CIT vs Smt. Pukhraj Wati Bubber 296 ITR 290.”
However the Ld.AO disallowed the claim of loss incurred due to embezzlement of cash by the staff of the assessee company during the course of the business of the assessee company by holding that any provision on uncertain liability cannot be allowed as deduction, and thereby made addition of Rs.94,33,665/- in the hands of the assessee.
On appeal the Ld.CIT(A) considering the facts of the case deleted the addition, relying on the decision of Smt. Pukhraj Wati Bubber.
The Ld.DR vehemently argued in support of the order of the Ld.AO. The Ld.AR on the other hand stoutly argued in support of the order of the Ld.CIT(A) and further reiterated the arguments made before the Ld.Revenue Authorities. The Ld.AR also produced the xerox copy of the First Information Report dated 20.02.2009 in order to establish the loss of Rs.93,53,800/- being embezzlement of cash by the assessee’s employee. It was therefore pleaded that the order of the Ld.CIT(A) may be confirmed.
We have heard the rival submissions and carefully perused the materials on record. From the facts of the case, it is apparent that the assessee’s employee has misappropriated the cash belonging to the assessee company for Rs.93,53,800/-. The assessee company having realized in the relevant assessment year, that the amount cannot be recovered from the employee, wrote-off the same as loss incurred during the course of its business in the relevant assessment year. It is pertinent to mention that the assessee is the best judge with respect to its business affairs and when it has realized that the embezzled cash by the employee cannot be recovered obviously such loss has crystalized at that moment i.e., during the relevant assessment year.
Accordingly the assessee has written off the loss during the relevant assessment year. In such circumstances, the decision relied by the assessee in the case Smt. Pukhraj Wati Bubber is very relevant and applicable to the case of the assessee wherein it is held as follows:
“Though there is no provision for allowing deduction of a trading loss on account of embezzlement, section 37 of the Income-tax Act, 1961, provides for any expenditure for the purpose of business and there has to be nexus between the business operation and the loss. If the loss was directly connected with the business operation and incidental to carrying on of the business, it has to be allowed as a deduction. The assessee claimed deduction on account of embezzlement by KH, who was a representative of the assessee for recovering sale proceeds. The said KH collected the amount from the customers but did not pay it to the assessee. The assessee lodged a FIR on January 29, 1981, on the basis of which a charge sheet was filed in the court of competent jurisdiction by the investigating agency. The claim was disallowed by the Assessing Officer, but allowed by the Tribunal. On a reference :
Held, that the Tribunal was justified in allowing deduction on account of embezzlement which was held to be incidental to the carrying on of the business since there was direct and proximate connection and nexus between the loss and the business operation of the assessee.”
The case of the assessee is almost identical to the case relied by the Ld.AR. Therefore considering the facts and circumstances of the case and the decision of the case relied by the Ld.AR supra, we are of the considered view that the amount of loss of Rs.93,53,800/- incurred by the assessee is allowable as deduction during the relevant assessment year. Hence we do not find it necessary to interfere with the order of the Ld.CIT(A).
In the result the appeal of the Revenue is dismissed.
Order pronounced on the 11th April, 2018 at Chennai.