Trading loss from theft of stock-in-trade is deductible when business records and complaints support the loss.

Loss of stock-in-trade caused by theft during transit is deductible as a trading loss where the evidence shows the goods were in business use and the disappearance is supported by contemporaneous records, such as stock entries and a police complaint. Rejection of an insurance claim does not, by itself, disprove the loss or its business character. On those facts, the jewellery loss was treated as incidental to the carrying on of the business and the disallowance was not sustainable.

---

---

Issues: Whether the loss of gold jewellery allegedly stolen during transit was allowable as a trading loss.

Analysis: The jewellery formed part of the assessee's stock-in-trade. The record showed that the goods were issued for transit to Hyderabad, a police complaint was lodged after the disappearance of the jewellery, and the matter was also taken before the Magistrate. The contemporaneous materials, including the stock records and the complaint proceedings, supported the occurrence of the theft. The rejection of the insurance claim did not negate the fact of loss or its business character. Applying the settled principle that a loss occasioned by theft or embezzlement is deductible where it is incidental to the carrying on of the business, the assessee's claim was found to be established.

Conclusion: The loss was allowable as a trading loss and the disallowance was unsustainable in favour of the assessee.

Ratio Decidendi: A loss of stock-in-trade caused by theft during the course of business is deductible as a trading loss if it is shown to be incidental to the carrying on of the business, and rejection of an insurance claim does not by itself disprove the loss.

---