TaxTMI 
TaxTMI 
1999 (11) TMI 58
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....g that the amount of Rs. 69,434 being the amount defalcated by the employee of the assessee-company is not an allowable deduction ? (2) Whether, on the facts and in the circumstances of the case, there were materials for the Tribunal to hold that the employee concerned was not competent to disburse the amount and hence it cannot be considered as an act during the course of business of the assessee ?" The short facts which are necessary for the disposal of this reference are as follows. The assessment year in question is 1981-82. The assessee-company is an industrial company engaged in the manufacture and sale of tiles and hand-woven goods. For the assessment year under consideration, the Income-tax Officer added a sum of Rs. 68,434 being ....
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....m Tea Estates Pvt. Ltd. v. CIT [1995] 214 ITR 457. Counsel for the Revenue, Shri P. K. Ravindranatha Menon, on the other hand, contended that since the employee who had defalcated the amount was not authorised to disburse the amount, the same cannot be considered as an act during the course of carrying on the assessee's business and consequently not a trading loss. Counsel further submitted that the duty to make payment is on the manager or cashier and not on the employee who defalcated the amount. The test for determining whether a particular loss will be deductible in computing the business profit or not was laid down by the Supreme Court in Ramchandar Shivnarayan's case [1978] 111 ITR 263 as follows : " If there is a direct and proxim....
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....ntal to its carrying on its business. This court in Churakulam Tea Estates Pvt. Ltd. v. CIT [1995] 214 ITR 457, held that the loss sustained due to misappropriation of money by a trusted and long-time employee of the managing director who has been associated with the working of the assessee-firm is a loss to be deducted as a business loss. In that case this court took the view that even though the employee defalcated the amount, he was not appointed directly by the company, but by the managing director. This court took the view that the amount defalcated would amount to trading loss. The above mentioned decisions would amply establish that if there is direct and proximate nexus between the business operation and the loss, or it is incide....