ITA NO. 5487/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No. 5487/DEL/2011
A.Y. : 2008-09
ASSTT. VS. SH. SCHIN KATARIA,
COMMISSIONER OF 1279, DR. MUKHERJEE
INCOME TAX, NAGAR,
CIRCLE 20(1), ROOM DELHI 110 009
NO. F-308, VIKAS (PAN: AAJPK2212K)
BHAVAN, NEW DELHI
(APPELLANT) (RESPONDENT)
Department by : Sh. Vikram Sahay, Sr. DR
Assessee by : Sh. Raj Kumar Gupta, CA
Date of Hearing : 05-11-2014
Date of Order : 10-11-2014
ORDER
PER H.S. SIDHU : JM
This appeal by the Revenue is directed against the Order of the
Ld. Commissioner of Income Tax (Appeals)-XXII, New Delhi dated
16.9.2011 pertaining to assessment year 2008-09 on the following
grounds:-
"1. Whether on the facts and circumstances of the
case the Ld. CIT(A) has erred in deleting the
addition of Rs. 60,62,443/- made by the AO in
1
ITA NO. 5487/Del/2011
regard to the disallowance u/s. 54F of the I.T.
Act, by admitting the additional evidences.
2. Whether on the facts and circumstances of
the case the Ld. CIT(A) has erred in deleting
the addition of Rs. 10,15,252/- on account o
the business loss pertaining to the amount
recovered by the police from the alleged
culprits.
3. The appellant craves leaves to amend or alter
or ay of the aforesaid ground of appeal and
amend, after or add any other ground of
appeal.
2. The brief facts of the case are that the asseessee is engaged
in the business of decorative handicrafts items. The assessee filed
its return of income showing a loss of Rs. 22,59,021/- on 30.9.2008.
In the assessment order, the assessing officer has disallowed claim
of exemption u/s. 54F of the Act. The Assessing Officer has also
disallowed claim of business loss of Rs. 20,15,252/- claimed on
account of fraud. The Assessing Officer also disallowed Rs. 58,565/-
out of vehicle maintenance expenses and Rs. 35,310/- out of
telephone expenses and Rs. 20,000/- out of staff welfare, festival
and general expenses.
3. Against the Assessing Officer's order dated 1.12.2010 passed
u/s. 143(3) of the I.T. Act, 1961 assessee appealed before the Ld.
CIT(A), who vide impugned order dated 16.9.2011 partly allowed the
appeal of the assessee.
4. Against the above order of the Ld. CIT(A) dated 16.9.2011,
Revenue is in appeal before us.
2
ITA NO. 5487/Del/2011
5. At the time of hearing Ld. Departmental Representative relied
upon the order of the Assessing Officer. He also reiterated the
contentions raised in the grounds of appeal that Ld. CIT(A) erred in
deleting the addition of Rs. 60,62,443/- made by the AO in regard to
disallowance u/s. 54F of the I.T., by admitting the additional
evidences and stated that the CIT(A) has not provided sufficient
opportunity to the Assessing Officer while admitting the additional
evidences. On the other hand, Ld. Counsel of the assesee has relied
upon the order of the Ld. CIT(A) and stated that the same should be
upheld.
6. We have heard both the counsel and perused the records. We
find that Ld. D.R. in ground no. 1 has force in his contention that Ld.
CIT(A) has not provided sufficient opportunity to thoroughly
examine the additional evidences, which is arbitrary in the eyes of
law. In our considered opinion, in the interest of natural justice, this
issue requires thorough investigation at the level of the Assessing
Officer. Hence, we remit the ground no. 1 relating to addition Rs.
60,62,443/- made by the AO in regard to the disallowance u/s. 54F of
the I.T. Act with the directions to consider the same, after giving
adequate opportunity of being heard.
7. We have heard both the counsel and perused the records.
With regard to ground no. 2 relating to addition on account of
business loss pertaining to the amount recovered by the police from
the alleged culprits, we find that Ld. CIT(A) has elaborately
discussed the issue in question and adjudicated the same as under:-
"I have considered the observation of the assessing
officer in the assessment order, submissions of the
appellant, copy of the bank account of the culprit
and copy of the bank account of M/s Ornet Homes
3
ITA NO. 5487/Del/2011
from where amount has been transferred
fraudulently. It is seen that an amount of
Rs.48,82,0001- was transferred fraudulently from
the appellant's bank account running with HSBC
Bank. In connection with this fraud, police arrested
one Mr. Ramesh of Village Barola, District Noida and
from his possession an amount of Rs.70,000/- in
cash and Rs.9,45,252/- were traced in his bank
account running with State Bank of India, Ghazipur,
Delhi. In the assessment order, it is mentioned by
the assessing officer that police seized Rs.70,000/-
in cash and Rs.l9,45,252/- have been traced in his
bank account. The AR of the appellant has
submitted that due to typing mistake, a sum
ofRs.9,45,252/- as reported by the police was stated
as Rs.19,45,252/- which is in facts Rs.9,45,252/-. In
support of this, the appellant has filed copy of the
accused's bank account from the State Bank of
India and copy of the petition filed by the appellant
before the Supreme Court. The balance amount
which is not yet traced is Rs.38,66,748/-. The
appellant has submitted that till date he has not
received any amount from the police and the
matter is still pending in the Supreme Court as the
appellant has made bankers as party without whose
connivance, the accused could not have succeeded
in transferring the amount from appellant's bank
account. It is also claimed by the AR of the
appellant that more than four years have elapsed to
the incident but till date not a single paisa has been
received by the appellant. Therefore, the total loss
4
ITA NO. 5487/Del/2011
on account of fraud of Rs.48,82,000/- has to be
allowed as capital loss.
I have considered the facts of the case, it is seen
that entire amount ofRs.48,82,000/- have been
fraudulently transferred from the appellant's
proprietary concern M/s Omet Homes in November,
2007. Though the police have caught the culprit
who has committed fraud but till date, the appellant
has not received a single paisa. M/s Omet Homes is
engaged in the business of exporting decorative
handicrafts items. Therefore, this loss occurred to
the proprietary firm is incidental to carrying on
business and there is a direct an proximate
connection and nexus between the money lo-st by
fraud and the business. Hence, the entire money
lost by the appellant in fraud has to be allowed as
business loss. The amount recovered by the police
of Rs.70,000/- in cash and Rs.9,45,252/- traced in
the bank account of the accused has not been
received by the appellant till date. As and when it
will be received by the appellant, the same will be
offered as income in the year of receipt, therefore,
the assessing officer's action of restricting the
claimed of business loss to Rs.28,66,748/- was not
correct. The appellant is entitled to set off full loss
occurred in the fraud. In support of the above view,
reliance IS paced on the following judicial
pronouncements:-
CIT v. Smt. Pukhraj Wati Rubber [2007J 199 Taxation
107 (Punj. & Har.)
5
ITA NO. 5487/Del/2011
The assessee's representative for recovery of
sale proceeds embezzled Rs. 2,64,795. The
Assessing Officer disallowed the loss however AAC
allowed assessee's appeal. The Tribunal confirmed
the AAC's order. On reference, the High Court
answered the question against the revenue and in
favour of the assessee as the loss on account of
embezzlement was incidental to carrying on the
business and there was direct and proximate
connection and nexus between the loss and the
business.
The High Court said that the liability to tax is
on profit or gains of business computed in
accordance with sections 30 to 43D of the Act.
Though there is no provision for allowing deduction
of a trading loss on account of embezzlement, yet
section 37 of the Act provides for any expenditure
for the purpose of business and there has to be
nexus between the business operation and the loss.
If loss was directly connected with the business
operation and incidental to carrying on' of business,
the same has to be allowed as a deduction.
Badridas Daga v. CIT [1958J34 ITR 10(SC), an agent
of the assessee withdrew amount from bank and
misappropriated the same. It was held that having
regard to accepted commercial practice and trading
principles, it could be held that loss arose out of
carrying on of business and was incidental to it.
Same principle was followed in CIT v. Nainital Bank
Ltd. [1965J 55 ITR 707(SC). In the said case, cash
6
ITA NO. 5487/Del/2011
amount was stolen in a dacoity. In Ramchandar
Shivnarayan v. CIT, AP [1978J 111 ITR 263 (SC),
after review of case law on the point, it was held
that loss on account of theft had to be treated as
trading loss as it was directly connected with the
business operation and was incidental to carrying
on of business.
Following the law laid down by the Supreme
Court, the High Court held that the Tribunal was
justified in allowing deduction on account of loss by
embezzlement, which was held to be incidental to
the carrying on of the business and there was a
direct and proximate connection and nexus
between the loss and the business operation of the
assessee.
In view of the above judicial pronouncement, it
is established that the loss occurred in fraud was
directly connected with the business operation and
incidential to carrying on of business. Hence entire
amount of business loss of Rs.48,82,OOOI- has to be
allowed as a deduction. As a result the assessing
officer in directed to delete the addition of Rs.20,
15,252/-."
7.1 In view of the above, we find considerable force in the
conclusion drawn by the Ld. CIT(A) that in view of the judicial
pronouncement discussed as aforesaid, it is established that the
loss occurred in fraud was directly connected with business
operation and incidental to carrying on of business. Hence, entire
amount of business loss of Rs. 48,82,000/- has to be allowed as a
7
ITA NO. 5487/Del/2011
deduction. Therefore, we find Ld. CIT(A) has rightly deleted the
addition of Rs. 20,15,252/-, which does not need any interference on
our part, hence, we uphold the same.
8. In the result, the Appeal filed by the Revenue stands partly
allowed for statistical purposes.
Order pronounced in the Open Court on 10/11/2014.
Sd/- Sd/-
[T.S. KAPOOR] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 10/11/2014
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
8
ITA NO. 5487/Del/2011
9
|
