Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business deduction/loss - Assessee's business required purchasing of goods from outstation parties and for that employees were sent with huge cash to make purchases - Whether amount embezzled by assessee's employee while on tour to make purchases for assessee, was allowable as business loss - Held, yes Facts While on a tour to make purchases on behalf of the assessee, the assessee's munim, who had been in service for over seven years and had earlier also gone out on similar work, disappeared with a certain amount of cash belonging to the assessee. After visiting the city to which the munim had gone and making enquiries about his whereabouts and on being told that the munim had not made payments to the parties from whom he had purchased goods, the assessee lodged a report with the police. The assessee's claim for the deduction of the amount so embezzled by the munim was disallowed by the ITO and by the AAC on appeal. On second appeal, the Tribunal found that the assessee's business required purchasing of goods from outstation parties and that the employees were sent with huge cash to make the purchases. The Tribunal allowed the impugned loss as trading loss holding that the factum of loss had also been proved inasmuch as the assessee had lodged a FIR with the police shortly after the incident and merely because the assessee had not taken any step to recover that amount, the impugned loss could not be disallowed. On reference: Held In view of the Supreme Court decision in Badridas Daga v. CIT [1958] 34 ITR 10, an amount embezzled by an employee while engaged in the regular course of business is allowable as a trading loss. Having regard to the facts and findings recorded by the Tribunal, the loss suffered by the assessee of the amount which was taken away by the munim was, therefore, loss incidental to his business and, hence, was deductible as business loss while computing the assessee's profits. Case review Badridas Daga v. CIT [1958] 34 ITR 10 (SC) followed, Associated Banking Corpn. of India Ltd. v. CIT [1965] 56 ITR 1 (SC) M.P. Venkatachalapathy Iyer v. CIT [1951] 20 ITR 363 (Mad.) and Lord's Dairy Farm Ltd. v. CIT…

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