Bombay High Court
Commissioner Of Income-Tax vs P.V. Gore & Co. on 27 April, 1982
Equivalent citations: [1983]143ITR922(BOM)
Author: Sujata V. Manohar
Bench: M.H. Kania, Sujata V. Manohar
JUDGMENT Sujata V. Manohar, J.
1. The assessee-firm is doing wholesale business in " kirana " (grains and provisions). It is a partnership firm having five partners. The dispute relates to the assessment year 1970-71, In that year, one of the partners of the firm, Lalchand Khanduram, was carrying a casli balance of the firm amounting to Rs. 20,000 from the shop to his home for safe custody at night, on his scooter. The bag containing the amount accidentally fell off the scooter and was lost. A police complaint was lodged but the money-bag was not found. The assessee has claimed the amount as a business loss. The ITO negatived the assessee's claim on the ground that the cash was not the stock-in-trade of the assessee. This order was confirmed by the A AC. The Tribunal, how-
ever, held that the assessee-firm was required to keep large cash for the purposes of its business and hence the loss in question was incidental to the business of the assessee and should be allowed. It passed an order accordingly. From this order at the instance of the Commissioner, the following question has been referred to us :
" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the loss of Rs. 20,000 as loss incidental to the business for the assessment year 1970-71 ? "
2. This question is governed by the ratio of the decision of the Supreme Court in the case of Ramchandar Shivnarayan v. CIT [1978] 111 ITR 263. In that case the Supreme Court held that if there is a direct and proximate nexus between the business operation and the loss or where the loss is incidental to the business operation of the assessee, the loss is deductible, as, without the business operations and the doing of all acts incidental to them, no profit can be earned. From a commercial view-point, therefore, such a loss is a trading loss which is deductible from the total income of the assessee. In that case a sum of Rs. 30,000 which had been borrowed for the purpose of purchasing Government securities was stolen from the cashier. The Supreme Court held that the loss of Rs. 30,000 was directly connected with the business operations of the assessee and was incidental to the carrying on of the business of purchase of Government securities to earn profit. In such a situation the loss was a part of the trading loss and was deductible as such in arriving at the true profits of the assessee.
3. In the present case, the Tribunal has held that the assessee-firm had a large daily turnover and it was required to keep a large cash amount in the shop during the course of its business. Since such an amount was being carried home by one of the partners for safe custody during the night when it was lost, the loss was incidental to the business operations of the assessee. In view of the facts in this case, therefore, the loss must be considered as incidental to the carrying on of the business by the applicant. The Tribunal has, in our view, correctly allowed this loss as a business loss.
4. In the premises the question which has been referred to us is answered in the affirmative, that is to say, in favour of the assessee and against the Commissioner.
5. The applicant to pay to the respondent costs of this reference.