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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri P K Bansal & Shri Pawan Singh
O R D E R Per P K Bansal, Vice-President:
This appeal has been filed by the Revenue against the order of the CIT(A)-25, Mumbai, dated 20.12.2013, for A.Y.2010 - 11. The Revenue has raised the following grounds of appeal:
“1. The Ld. CIT(A) has erred in the law as well as on the facts in allowing loss claimed by the assessee as trading loss, as the assessee failed to produce documentary evidence like item wise inventory of Jewellery, manufacturing details, documentary evidence regarding salary payment to the employee involved in transit of Jewellery which was stolen, also the insurance Company has rejected the claim of the assessee.
2. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in law in allowing the loss claimed by placing reliance on the case laws which are not relevant to instant case.”
The only issue involved in this appeal relates to the allowance of loss incurred by the assessee on account of theft of jewellery though the claim made to the insurance company had been rejected. None appeared on behalf of the assessee even though the case was earlier adjourned for today on the request of the assesse’s counsel. We noted that on earlier three occasions also the case was adjourned on one pretext or the other on the request of the assessee’s counsel. On 01/05/2017, the assessee’s counsel, Advocate Shri Sashank, has duly noted the date fixed for hearing of 11.09.2017. We, therefore, proceed to dispose of the appeal after hearing the learned DR and on the basis of the material available on record.
After hearing the learned DR and going through the orders of the tax authorities below, we noted that the assessee firm is engaged in the business of manufacturing and dealing in gold jewellery, precious stones and F & O.
The assessee filed the return of income on 23.09.2010 declaring the total income at ` 2,02,810/-, which was processed u/s. 143(1). Subsequently, the assessment was completed u/s. 143(3) on 18.03.2013, by making addition of ` 93,69,402/- by disallowing the loss incurred by the assessee on account of theft. The Assessing Officer noted that the assessee mainly sold goods in various major cities in India. On 28.10.2017, the Managing Partner Shri Navratnamal Gana had sent his son Shri Jinesh Ganna along with Shri Manish K Nanavati, Shri Ramesh Khandelwal and Shri Bipin Jain to Hyderabad by bus for selling gold and ornaments weighing 11.382 kg. On 28.10.2007, at around 8 pm to 8.30 pm Shri Vikash (son of Shri Navratnamal Ganna) telephonically informed Navratnamal Ganna that Shri Manish had called from Pune informing about the theft of gold Jewellery. Thereafter, Shri Navratnamal Ganna, Shri Vikash and Shri Prakashchand Ganna left for Pune.
In the meantime, they told Shri Manish to inform the police about the incident. When they reached Pune on 29.12.2007 at 1.30 am, enquired from Shri Jinesh Ganna along with Shri Manish K Nanavati, Shri Ramesh Khandelwal and Shri Bipin Jain about the incident. They informed that on 29.10.2007 around 8.30 pm their Bus No. KA-03, B-9626 stopped near Pune Central Park Hotel for dinner. After dinner, when they returned they found that the bag was in proper place but again in Pune when they opened and checked the bag, they found the gold ornaments missing. One lady Smt.
Kalpna, who was also travelling in the same bus, informed the police that out of the four person one came back with the cleaner and opened the bag and took something out and went for dinner and when they reached Pune they started speaking loudly saying that gold ornament of 4629.700 gms and 6752 gms has been stolen. Thus, it was understood that it was Shri Ramesh Khandelwal, who came back with the cleaner and opened the bag and took something out of the bag and kept the bag back in its proper place. In this regard note on loss by theft of ` 98 lacs was given by the assessee. The Police noted that the theft had occurred near about Pune. The Assessing Officer asked for the copy of the FIR from the assessee, which was duly submitted. The Assessing Officer further noted that Oriental Insurance Company in reply to notice u/. 133(6) stated that the stock receipt register of the assessee did not have details of gold ornaments carried but only the total weight. Secondly, the muster rolls cum wages register reflected the names of employee Shri Manish K Nanavati, Shri Ramesh Khandelwal and Shri Bipin Jain as on Oct 27,2008 but the register did not reflect the amount of wages and signature of the employees in the available column. Further, the assessee submitted a detailed note along with handwritten stock register in which entries of issue of 11,382 gms gold ornaments to Sri Ramesh Khandelwal and Shri Manish K Nanavati for tour to Hyderabad on October 27 were noted. A copy of vouchers bearing no.71 and 76 dated October 27 showing issue of 6,752.500 gms and 4,629.700 gms respectively to Shri Ramesh Khandelwal and Shri Manish K Nanavati were also provided.
However, the Assessing Officer did not accept the contentions of the assessee and took a view that on the basis of probability, none of the prudent business man would in one go send 1/4th of its total gold through the employees by bus for making sales outside the city. The Assessing Officer therefore, disallowed the alleged loss and added a sum of ` 93,69,402/- to the income of the assessee. On appeal, the CIT(A) has appreciated all the facts and evidence including the FIR as well as the stock statement, muster roll along with the voucher nos. 71 & 76 showing the issue of gold ornaments of 6,752.500 gms and 4,629.700 gms respectively to Shri Ramesh Khandelwal and Shri Manish K Nanavati. After calling for a remand report from the Assessing Officer as well as rejoinder from the assessee, the CIT(A) deleted the addition by observing as under:
“5.6 I have perused the assessment order, written submissions of the appellant, remand report, rejoinder and the facts and circumstance of the case. The facts in the case of the appellant are that it is a firm from carrying on business in manufacturing gold ornaments and jewellery and selling the same on wholesale basis. For the A.Y.2010 - 2011, it filed a return of income showing total income of Rs.202s810A In the assessment order 18/03/2013 passed by the A.O. he determined the total income at Rs.95,72,210/- In arriving at this total income, the A.O disallowed a sum of Rs.93,69,402/- claimed by the appellant as loss on account of theft of gold jewellery while same was being taken to Hyderabad to be shown to the purchasers. The appellant sent three of its employees and a partner's son on 28/10/2007 by bus to Hyderabad to hand over item of jewellery weighing 11.382 kg for sale on approval. These four persons left Mumbai at about 5.15 pm in a Volvo bus. Between 8 and 8.30 PM when the bus halted at Central Park Hotel Pune for dinner the employees and the partner's son got down from the bus for dinner and the bag containing the item of jewellery was kept under the seat occupied by two of the employees (Jinesh and Bipin). After having dinner all the four returned back and got into the bus. They found that the bag containing jewellery was below the seats of two the employees, where it was kept before they left for dinner. After travelling for some time they noticed the bag was very light and therefore opened it and found that the gold ornaments were not there. Shri.Vikas telephoned on his mobile to the managing partner of the appellant- firm. The managing partner immediately left for Pune. A preliminary complaints was lodged in Bund Garden Police Station at above 1.30 am on 29/10/2007.The police informed the complainant that as the theft has taken the place under the jurisdiction of Dehu Road Police Station Pune, the FIR was forwarded to Dehu Road Police Station at about 2.30 PM .A complaint was also filed before the First Class Magistrate, Wadgaon, Mavil (Criminal M.No.43 9/2007) against the three employees and the cleaner of the bus (fourth accused in the complaint filed before the Magistrate). The magistrate in his order dated 25/02/2011 released the three employees of the appellant from the charges framed against them and directed that the case against the fourth accused (cleaner of the bus) should be continued. 5.7. Later on a claim was made before the Oriental Insurance Company Ltd. After making its inquiries the insurance company in its letter dated 28/04/2008 rejected the claim of the appellant. The Oriental Insurance Company Ltd. held that the issue voucher and stock receipt register maintained by the appellant did not show the itemized details of the gold ornaments carried. The entries only showed the total weight and no description of the ornaments carried was given. Further the Insurance Company also stated that the wages register maintained by the appellant did not show the amount of wages and the signature of the employees under the appropriate columns. The Insurance Company found that no other evidences like salary vouchers or salary register were provided to the Insurance Company.
5.8.In the assessment order the A.O held that enough evidence was not on record to prove that the appellant's employees and the partner's son did not carried that much of gold jewellery which claimed as loss. Further he also relied on the fact that the Insurance Company also rejected claimed of the appellant in regard to the loss of gold jewellery. The A.O therefore rejected the claim of the appellant and added the same while arriving at the appellant's total income.
I have considered the above points raised by the A.O. From the papers on record I find that:
(i). The assessee has been manufacturing articles of gold jewellery and selling them on wholesale basis. Gold jewellery is therefore part of stock-in-trade of the appellant.
(ii) Three employees of the appellant (Manish Kapurchand Nanavati, Mahesh Meghraj Khandalwaland Bipin Sohanlal Jain) and Jinesh Ganna son of partner Navratnamal Ganna, were asked to carry jewellery weighing 11.382 kg of gold to Hyderabad. The four left by a Volvo bus to Hyderabad. The bag containing jewellery was kept under the seats occupied by two of the employees. Between 8 -8.30 PM the bus halted at a hotel to enabled passengers to have their dinner. The four persons also got down from the bus and after having dinner returned back to the bus and found that the bag containing jewellery was in the proper place where it was kept earlier. After the bus travelled a few miles, the bag was opened and to their surprise, the four found that the jewellery in the bag was missing. A police complaint was preferred and the police also filed a case before the Magistrate against the three employees and the cleaner of the bus. The Magistrate in his order dated 25/02/2011 released the three employees of the charges framed against as them and directed that the proceedings against the fourth accused (who was absent in the court) should be continued. This clearly shows that the appellant pursued the matter with the police but Magistrate released the three employees of the appellant. (iii) The appellant preferred its claim with the Oriental Insurance Company Ltd. The Insurance Company in its letter dated 28/04/2008 rejected the claim of the appellant. In this letter the Insurance Company pointed out certain deficiencies in the registers maintained by the appellant. These deficiencies are mentioned in paragraph 4.4 of the assessment order. The main deficiency pointed out is that no item-wise stock register was maintain. This is not very relevant as the register maintained shows clearly the details of purchases and the sales made which also contain quantitative details. The register maintained shows that items of jewellery weighing more thanll.382 kg of gold were available with the appellant. While the stock available in October 2007 was 22678.49 grams of jewellery, 11382.2 grams of jewellery was given for carrying the same to Hyderabad. The claim that jewellery weighing 11382.2 grams was carried by the four persons on 28/10/2007 and the same was loss, is therefore, established. The rejection of the appellant's claim by the Oriental Insurance Company Ltd based on defects in some of the register maintained by the appellant, has no relevance on the issue of the loss of jewellery.
5.10. The appellant also relied on a few decisions in support of its claim. In the case of Shri Ram Hari Ram Jewellers vs Deputy Commissioner of Income Tax reported at 48 ITD 175 (DELHI) (TM) the facts are similar to the facts in the case of the appellant. In this case relied upon by the appellant, the ITAT allowed the claim of the assessee on account of theft of gold jewellery from its shop premises.
In view of the above, the appellant's claim for deduction of Rs.93,69,402/- as trading loss is allowable. This disallowance made by the A.O is deleted accordingly.
The learned DR relied on the order of the Assessing Officer and carried us through the assessment order wherein it has been mentioned that prudent business man would not in one go send 1/4th of its total turnover in gold through the employees by bus for making sales outside the city. But he did not dispute the fact that the assessee has lodged a criminal complaint against the said employees’ u/s. 408 of the IPC Act. It is also not denied that the assessee was engaged in the business of selling gold ornaments at different places regularly through its employees and the jewellery had been lost during the transit. The jewellery was sent not only with the employees but the son of the managing partner Shri Jinesh Ganna was also accompany them and the jewellery was kept in a bag below the seat where Shri Jinesh Ganna & Bipin Jain were seated. The incident happened when all of them went for dinner when the bus stopped at Hotel Centre Park. It is case where the theft was noticed not only by the employees but also the managing partner’s son and even one lady Smt. Kalpana travelling in the same bus, who confirmed to having seen one of the employees along with the cleaner returning to the seat and taking something from the bag. All the passengers in the bus went to the police station where FIR was lodged. All thee evidence prove that then has indeed taken place. It is not a case where we can say that the evidence has been created by the assessee. Had it been the case, FIR u/s. 408 of the IPC would not have been lodged. Hon’ble Jurisdictional High Court in the case of G. G. Dandekar Machine Works Ltd. vs. CIT 202 ITR 161 has clearly held whether any loss from theft, dacoity, embezzlement, etc., is deductible or not, what is material is whether the loss incurred by theft, dacoity, etc., is incidental to the carrying on of the business. It does not make much difference whether such act is committed by the employees of the assessee or by strangers. 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. In the case of Badridas Daga vs. CIT 34 ITR 10 (SC), the Hon’ble Apex Court took a view that loss resulting from embezzlement by an employee or agent in a business is admissible as a deduction under section 10(1) of the Indian Income-tax Act, if it arises during the course of carrying on of the business and is incidental to it. This is a case where theft has taken place in respect of the trading asset of the assessee and during the course of carrying on the business by it. Merely because the insurance company has not compensated the assessee and did not accept the claim of the assessee does not mean that the assessee has not incurred loss or theft has not taken place. We, therefore, confirm the order of the CIT(A) and dismiss the appeal of the Revenue
In the result, the Revenue’s appeal is dismissed.
Order pronounced in the open court on 11th day of September, 2017.