TaxTMI 
TaxTMI 
2020 (2) TMI 1039
X X X X Extracts X X X X
X X X X Extracts X X X X
....h are as follows: "In the case of this assessee there is embezzlement by employee of the Old Cloth Market Branch, Akola bank, the amount is mentioned at no.1 of the statement. In the Washim Branch employees have collected bills on behalf of MSEB and did not deposit the amount in the bank, this has happened in the course of banking business, it as sr. no.2 of the statement. Item No.3, 4, 5 & 6 of the statement are in respect of the debit balances at Washim Branch, Risod Branch, Akot Motor Stand Branch and Kedia Plot Branch in the current account and saving account of the customers. The employees have passed the cheques either without verifying the credit balance or in anticipation of clearing of cheques deposited by the customers. This amount could not be recovered hence written off. Item no.7 of the statement is in respect of fraud committed by recurring deposit agent. The RD agent collected money from customers and did not deposit the amount with bank. He has given receipts to the customers. Out of the total amount of Rs. 300000/- bonk could recover Rs. 38206/-from the agent and balance has to be write off. Item no.8 of the statement is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ying circumstances is deductible as a trading loss in computing the total income of the business - but every loss is not so deductible unless it is Incurred in carrying out the operation of the business and is incidental to the operation - retention of money in the bank premises carries with it the ordinary risk of its being subjected to embezzlement, theft, dacoity or destruction by fire and such other things - such risk of loss is incidental to carrying on of the operation of business of banking - therefore, the loss of cash by dacoity is an admissible deduction. 3. 111 ITR 263 (S.C.) Ramchandar Shivnarayan vs Commissioner of Income Tax - business income - loss by theft - assessee had borrowed a sum of Rs. 50000/- from some creditor- money was brought in cash to the town by its employee - out of the said sum which was meant for purchase of Govt. Securities a sum of Rs. 30000/- was lost by theft - loss was directly connected with the business operation and was incidental to the business of purchase of Govt. Securities for resale in order to cam profit - hence it was a trading loss and deductible from profits. 4. 98 ITR 50 [BOM H.C.] Sassoon J. David & Co. Pvt. Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and the matter being sub-judiced has not yet attained the finality. Thereafter, the Ld. CIT(Appeals) also observed that since there are legal proceedings pending against all those defaulters, therefore, possibility of recovery cannot be ruled out and therefore, the Ld. CIT(Appeals) held that the loss claimed by the assessee does not fall within the ambit of bad debts u/s.36(ii) of the Act and accordingly, the Ld. CIT(Appeals) upheld the addition. 5. Before us, the Ld. Counsel for the assessee submitted that complete details of claim of loss of Rs. 52,30,000/- given item wise before the Assessing Officer and the Ld. CIT(Appeals) explaining reasons for loss as well as allowability of same for determining assessable income at the hands of the assessee. The Ld. AR of the assessee further submitted that the Assessing Officer has not disputed the occurrence of loss and write off the same in the books of account. The Assessing Officer however observed that assessee needs to prove beyond doubt that such losses have actually become irrecoverable. The Assessing Officer has observed that there is possibility of recovery of this amount and losses claimed cannot be equated with the amount wr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (i) Badridas Daga Vs. CIT, 34 ITR 10 (SC) (ii) CIT Vs. Nainital Bank Ltd. 55 ITR 707 (SC) (iii) J & K Bank Ltd. Vs. ACIT, 157 DTR 361 (J & K) (iv) Sasson J David and Company (P) Ltd., 98 ITR 50 ( Bom.) (v) Harijan Evam Nirbal Varg Avas Nigam Ltd. Vs. CIT, 229 ITR 776 (All) (vi) Punjab Steel Stockholders Syndicate Ltd. Vs. CIT, 125 ITR 519 ( Pubjab & Haryana) (v) CIT Vs. Smt. Pukhraj Wati Bubber, 296 ITR 290 ( Punjab & Haryana) It is the contention of the Ld. AR that ratio laid down by the aforesaid decisions squarely applies to the facts in the case of the assessee. In view of above, the addition made by disallowing the claim of expenses at Rs. 52,30,000/- is unjustified and unsustainable. 5.4 The Ld. AR of the assessee further contended that the loss in fixed deposit is allowable business loss. The investment in FDR is in terms of directive of RBI to maintain liquidity ratio. Banks are required to keep money in liquidity by placing the same in Govt. Securities, Deposits with other banks and are required to maintain the same as current asset. The loss arising in Govt. Securities is allowable deduction. Loss in FDR is ak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, it has been held that trading loss on account of embezzlement and fraud is to be allowed in the year in which the amount is written off as irrecoverable. 8. In the case of Ballarpur Industries Ltd. in ITA No.91/NAG/2011 vide order dated 16.04.2018, 168 DTR 225, the Co-ordinate Bench of the Tribunal, Nagpur had faced identical issue and allowed the appeal of the assessee by observing as follows: "9. We have heard rival contentions and gone through facts and circumstances of the case. We have gone through facts and noticed that imported materials amounting to Rs. 34crores (Annexure A) as lying under the custody of Port Authorities / Bonded Ware House was considered as permanently impaired in terms of Accounting Standard AS 28, because market/realizable value of all such materials were completely eroded and claim for use those material was surrendered to the Port Authorities. In early97, the assessee imported certain materials mainly from Finland. Cost of import for such materials were to the tune of Rs. 37 crores (approx..) before insurance, custom duty and other cost. The assessee, on account of financial stringency prevailing during the period, was not in a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....when all such units are running continuously 365 days in a year. Thus, expenditure or the imported item whether used or not was for assessee's existing business. For allowance of a claim for deduction as business loss / expenditure, all that is necessary is that firstly, the money, i.e. capital, must have been utilized, secondly, it must have been expended in relation to business. It is admitted position in law, where there is no specific statutory provision for a deduction in the computation of business profits, it does not mean that the items goes without any deduction at all, but the question has to be resolved on the basis of commercial prudency having regard to the accepted commercial practice and trading principles and can be said in a case to arise out in course of carrying on the business and very much incidental to such business. Impugned loss contains all the indicia of expense. Similarly, any isolate transaction, once in 40 -50 years is not an impediment to it being called as business loss since the expenses were very much incidental to the carrying on of the business. All that is germane is whether the expenses was, or was not, for the purpose of business a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diture not covered by any of the preceding sections (sections 30 to 36) and section 80VV of the Act. The only conditions are that (i) it is not an expenditure (a) in the nature of capital expenditure or (b) personal expenses of the assessee, and (ii) it is laid out or expended wholly and exclusively for the purposes of the business or profession. 9. Various tests have been evolved by the Courts from time to time to decide whether an expenditure is incurred for the purposes of business. One of the tests often applied is whether it is incurred by the assessee in his character as a trader. To hold it to be an expenditure allowable as a deduction under section 37, it is not essential that it should be necessary, legally or otherwise, to incur the same or that it should directly and immediately benefit the business of the assessee. Even expenditures incurred voluntarily on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business would be deductible under this section. The question whether it was necessary for commercial expediency or not, is a question that has to be decided from the point of view of the businessman and not by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the payment was dictated by commercial expediency. This finding of fact having not been challenged on the ground of perversity or the like, it is not open to the revenue at this stage to contend that the payment of compensation by the assessee was not for business consideration but was a payment for extra-commercial consideration. On facts also, there does not appear to be anything wrong or unusual in the payment of the sum of Rs. 1,55,855 by way of compensation to the sole selling agents for loss of office which they had been holding for more than three decades and in claiming deduction of the same in computation of its total income. We, therefore, answer the first question also in the affirmative and in favour of the assessee." 12. Similarly, the Hon'ble Bombay High Court in the case of Zenith Steel Pipes Ltd. vs. CIT (1990) 186 ITR 594 (Bom.) and considered the issue of write off of stores & spares imported earlier but lying in the godown of a port authority is a loss incidental to the business. Hon'ble High Court considered this issue as under:- "Evidently, the subject-matter of both the questions is the same. The assessee had imported c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the same unless there was even a suggestion that the goods were wrongly imported or that the Customs authorities would have otherwise confiscated them. Dr. Balasubramanian relied on the order of the Tribunal. In our opinion, the submissions on behalf of the assessee are well-founded. It is common ground that the consignment was not being traced for a sufficiently long time and it was traced only as a result of the efforts made by the assessee's agents, Messrs. Insimax Corporation, Bombay, to whom the assessee had to pay fees of Rs. 3,500. It is not on record as to how much time the agents took to trace the consignment. However, the assessee-company carries on its business and it is for the assessee to decide whether it was in its interest to clear the consignment or not as it would have amounted to waste of good money after bad money. It was a business decision which the departmental authorities could not have questioned without any cogent reasons. In the circumstances, insisting upon the inspection report was absolutely meaningless." 13. Even the Hon'ble Bombay High Court in the case of Lord'S Dairy Farm Ltd. vs. CIT (1955) 27 ITR 700 (B....