Trading loss on theft of stock-in-trade is allowable in the year of theft, but only at proven cost.

Loss of jewellery stolen from business stock-in-trade was treated as an allowable trading loss in the year of theft because the stock was incidental to the jewellery business and the later police classification as untraced related back to the burglary date. The majority also held that deduction could not be based on claimed market value; it was confined to the proved purchase cost of the stolen jewellery. On the evidence, statutory stock records, the FIR and the post-burglary inventory were relevant to identify the missing stock, while the dissent would have required further proof of theft and quantum before allowing relief.

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Issues: Whether the loss of jewellery stolen from the assessee's business premises was allowable as a trading loss in the year of theft, and whether the deductible amount had to be restricted to the purchase cost of the stolen jewellery.

Analysis: The assessee was engaged in the jewellery business and maintained statutory stock records which, along with the FIR and inventory prepared after the burglary, were relied upon to identify the missing stock. The majority held that theft of stock-in-trade gives rise to an immediate business loss, distinct from a debt becoming irrecoverable, and that the later police report describing the case as untraced related back to the date of theft. Since the jewellery constituted stock-in-trade, the loss was incidental to the business and was allowable as a trading loss. On valuation, the majority held that the deduction could not be based on the asserted market value and had to be confined to the cost of acquisition of the stolen goods.

Conclusion: The loss was allowable as a business loss in the year of theft, but only to the extent of the purchase cost of the stolen jewellery, not the claimed market value.

Dissenting Opinion: The Judicial Member held that the assessee had not discharged the burden of proving the theft and the quantum of loss by sufficient evidence and considered remand necessary for fresh consideration.

Ratio Decidendi: Loss of stock-in-trade by theft is an allowable trading loss in the year of theft, and where the claimed value exceeds cost, deduction is restricted to the acquisition cost proved on record.

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