Business loss deductible where cash lost in transit had direct nexus with trading operations and was incidental to business.

A business loss is deductible where there is a direct and proximate nexus between the loss and business operations, or where the loss is incidental to carrying on the business. On the stated facts, cash was being taken home for safe custody because the firm needed to hold substantial cash in the ordinary course of its trading activity, and it was lost in transit. The loss was therefore connected with the business operations and treated as a trading loss, making it allowable as a business loss incidental to the assessee-firm's business.

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Issues: Whether the loss of Rs. 20,000, caused when cash carried by a partner for safe custody was lost in transit, was allowable as a business loss incidental to the assessee-firm's business for the relevant assessment year.

Analysis: The governing principle is that a loss is deductible when there is a direct and proximate nexus between the business operations and the loss, or when the loss is incidental to the carrying on of the business. On the facts found, the firm had a large daily turnover and was required to keep substantial cash in the course of business. The cash was being taken home for safe custody as part of that business necessity when it was lost. The loss was therefore connected with the business operations and fell within the category of trading loss.

Conclusion: The loss of Rs. 20,000 was rightly allowed as a business loss incidental to the assessee's business.

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