Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of Though there is no provision for allowing deduction of a trading loss on account of embezzlement, yets section 37 provides for any expenditure for purpose of business and there has to be nexus between business operation and loss; if embezzlement loss is directly connected with business operation and incidental to carrying on of business, same has to be allowed as a deduction [A.Y 1982-83] Though there is not provision for allowing deduction of a trading loss on account of embezzlement, section 37 provides for any expenditure for the purpose of business and there has to be nexus between the business operation and the loss; if the loss is directly connected with the business operation and incidental to carrying on of the business, the same has to be allowed as a deduction. The assessee had claimed deduction on account of embezzlement by one K who was the representative of the assessee for recovering the sale proceeds. The said K had collected the amount from the customers but did not pay the same to the assessee. The assessee lodged an FIR on 29- 1-1981, on the basis of which charge-sheet was also filed in the Court of competent jurisdiction by the investigating agency. The claim was disallowed by the Assessing Officer on the ground that the assessee had failed to lead evidence that K had been authorized by the assessee to make collections. The assessee's claim was allowed by the Tribunal: Held that the Tribunal was justified in allowing deduction on account of embezzlement which was held to be incidental to the carrying on of the business and there was direct and proximate connection and nexus between the loss and the business operation of the assessee. JUDGMENT 1. The following question of law has been referred for the opinion of this court by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, arising out of its order dated June 25, 1986, in ITA No. 440(ASR)/1985, for the assessment year 1982-83: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the Appellate Assistant Commissioner for directing the Income-tax…

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