AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 1348
X X X X Extracts X X X X
X X X X Extracts X X X X
....disallowance of loss of goods by theft ignoring the facts and circumstances of the case. The same deserves to be deleted. 2.1 Apropos Ground No. 1 and 2 of the assessee, the facts as emerges from the order of the ld. CIT(A) is as under:- ''3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessee had claimed loss of goods by theft for amounting to Rs. 4,7,500/-. In the assessment proceedings, the Assessing Officer had called for the details which have not been provided. It was claimed that the company has investigated and found the fraud of Tata Sky Vouchers /Coupon on the supplier company. It was further submitted that the fraud was deleted by the company's internal control depart....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 4,77,500/- of Tata Sky Vouchers / Coupon (transferable through mobile) has been committed on the basis of records available from the supplier company. During the course of assessment proceedings, the assessee produced a detailed list of the instances where loss had occurred on account of such fraud / theft. However, the Ld. AO disallowed the loss so claimed by assessee, merely on the ground that no legal action was taken against the persons who had committed the fraud. The Ld. AO alleged that the assessee cannot be allowed to make such entry of loss in books of account in the absence of any action taken by assessee for recovery of the amount embezzled, in support of which, Ld. AO placed reliance on the judgment of Hon'ble Supreme Court in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quidator, of the embezzled amount and therefore, it was held that so long as there was a reasonable prospect of recovering the amounts embezzled by the bank, trading loss in a commercial sense may not be deemed to have resulted.However, in the present case the Ld. AO has failed to establish that there were reasonable prospect of recovering the embezzled amount. In the instant case, the Ld. AO has not doubted the genuineness of the fraud but has merely alleged that the assessee did not make effort for recovery of the amount, however, he failed to establish that there was reasonable prospects of recovery of the amount embezzled, the burden to prove which was clearly upon him. It was submitted before the Ld. AO that legal action against the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act, 1961) if it arises out of the carrying on of the business and is incidental to it. In the second case the decision is that loss must be deemed to have arisen only when the employer comes to know about it and realises that the amounts embezzled cannot be recovered. 2. In the light of the above decisions of the Supreme Court, the legal position now is that loss by embezzlement by employees should be related as incidental to a business and this loss should be allowed as deduction in the year in which it is discovered Thus, now it is a settled position that loss by embezzlement by employees should be related as incidental to a business and this loss should be allowed as deduction in the year in which it is discovered. Another dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vant previous year was allowable as deduction in the computation of the income in that previous year itself. (P. 566, C, D) Similarly, the Hon'ble Gujarat High Court in the case of Kamla Cotton Co. Vs. CIT reported in (1997) 226 ITR 605 has held that: "...The requirement that a debt has become bad or irrecoverable does not mean that the Department can insist upon demonstrative and infallible proof that the debt had become bad. It is not compulsory for the assessee to take legal proceedings against the debtor for recovery of the claim before writing it off as a bad debt. When a creditor bona fide writes off a debt because there appears no chance of its recovery in the foreseeable future or where the recovery proceedings would be so cum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d but he disallowed the claim of the assessee for the reason that the assessee could not establish the fact of fraud like non- production of copy of FIR and not taking any legal action against the employee who was involved in this activity of fraud. The ld. AR further submitted that nonaction against those employees cannot bring the genuineness of the loss in question and more particularly when the fact of loss on account of fraud is an admitted position and thus the genuineness thereof automatically gets established. The ld. AR of the assessee relied on decision of Hon'ble Supreme Court in the case of Associated Banking of India Ltd. vs. CIT (supra). Further the ld. AR of the assessee took resort of CBDT Circular No.25 of 1939 and Circ....