Business loss from stolen hundi funds deductible when loss became complete and the cash had direct business nexus.

A loss from stolen business money is deductible only when the loss becomes complete, meaning recovery is no longer possible or has become remote and the assessee has a real consciousness of loss. On the facts, part of the cash was recovered on the day of theft and the balance could still reasonably be expected to be traced during investigation, so the loss was treated as arising after 1 April 1960 and therefore fell in assessment year 1961-62. The money had been entrusted to honour a business hundi, establishing a direct business nexus and characterising the unrecovered amount as a business loss. The deduction was therefore admissible.

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Issues: Whether the sum of Rs. 12,000, being the unrecovered balance of money stolen while being taken for deposit to honour a business hundi, was an admissible deduction in the assessment year 1961-62.

Analysis: The loss was not treated as complete merely on the date of theft. A mere dispossession does not become a loss until recovery becomes impossible or the chance of recovery becomes remote, and the consciousness of loss must arise in the mind of the person dispossessed. In the present case, a part of the amount was recovered on the same day, and the remaining amount could reasonably be expected to be recovered during the subsequent period of investigation. The Court held that the consciousness of loss arose only after 1 April 1960, so the claim was properly referable to assessment year 1961-62. The Court further found a direct business connection, because the money had been handed over to honour a hundi arising out of the assessee's business dealings, making the loss a business loss.

Conclusion: The deduction was admissible and the reference was answered in favour of the assessee.

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