Madras High Court
Tubes & Malleables Ltd. vs Commissioner Of Income Tax on 1 February, 1995
Equivalent citations: [1995]216ITR5(MAD)
Author: T. Jayarama Chouta
Bench: T. Jayarama Chouta
JUDGMENT Thanikkachalam, J.
1. In pursuance of the direction given by this Court in TCP No. 479 of 1980, dt. 3rd March, 1981, the Tribunal referred the following questions of law for our opinion under s. 256(2) of the IT Act, 1961 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee is not entitled to a deduction of Rs. 13,601 ?
2. Whether, the Tribunal is justified in holding that the primary fact of the loss either due to embezzlement or for any other reason has not been established by the appellant even though the entries find a place in the regularly maintained books of account ?
3. Whether, the Tribunal is right in holding that no evidence was produced by the appellant that embezzlement had taken place in the course of the business ?
4. Whether the Tribunal is legally correct in holding that embezzlement had not occurred in the year of account ?"
2. The assessee is a public limited company. During the year of account, the assessee claimed a sum of Rs. 52,547 recorded in the balance sheet as advances and deposits as deductions in working out the profit. According to the assessee, two items of Rs. 38,945 and Rs. 13,601 were stated to have been embezzled by the employees of the assessee in different branches. The dispute in the present reference is only with regard to the amount of Rs. 13,601 stated to be on account of the embezzlement at Trichy. The assessee informed the ITO that at the Trichy branch, one K. Balakrishnan, a junior employee of the assessee, forged the seal of the bank officials and bank challans used for cash remittances and embezzled amounts to the tune of Rs. 13,601 mainly in the month of August, 1971. The assessee filed a police complaint. The criminal complaint was enquired into by the trial Court which convicted the said Balakrishnan, but, later on, an appeal was preferred before the District Magistrate, who not only acquitted him but also asked the assessee to pay compensation to the said Balakrishnan, for the false complaint lodged against him. The ITO disallowed the claim of Rs. 13,601 as a deduction in the assessment year under consideration, since, according to him, the alleged embezzlement occurred in August, 1971, therefore, it fell outside the year of account. Secondly, the ITO pointed out that there was no evidence to show that the embezzlement had taken place in the course of the business at all. However, on appeal, the AAC accepted the assessee's claim and allowed the deduction of Rs. 13,601. Aggrieved, the Department filed an appeal before the Tribunal. The Tribunal set aside the order of the AAC and restored the order passed by the ITO.
3. It is the case of the assessee that, inasmuch as, the acquittal was granted on technical grounds and the assessee produced account books to show that the amounts were paid to the said Balakrishnan and those amounts were later on embezzled by him, the assessee has proved a loss of Rs. 13,601 in the accounting year relevant to the assessment year under consideration. However, on the facts, the Tribunal found that neither before the Tribunal nor before the authorities below the assessee had produced any evidence to support any book entry showing that an advance of Rs. 13,601 was made to Balakrishnan, who did not return it or that the sale proceeds amount of Rs. 13,601 remained uncollected by the assessee. The Tribunal also pointed out that the primary fact of loss either due to embezzlement or for any other reason was not established. The fact remains that the District Magistrate not only ordered an acquittal, but also directed the assessee to pay compensation to the said Balakrishnan for filing a false complaint. This would go to show that the embezzlement was not established. In order to prove the loss which occurred to the assessee as per the entries in the account books, no further materials were produced before the assessing authorities or before the Tribunal to establish the case. Therefore, on the facts, the Tribunal came to the conclusion that the loss did not occur during the accounting year relevant to the assessment year under consideration. Learned counsel appearing for the assessee relied upon a decision in the case of U. P. Vanaspati Agency vs. CIT (1968) 68 ITR 120 (All). According to the facts arising in that case, a sum of Rs. 13,100 was handed over to one P to honour the hundi received by the assessee in connection with the business and that a sum of Rs. 12,000 was a loss incurred by the assessee in the conduct of the business. Therefore, the Allahabad High Court held that the loss occurred during the relevant accounting year in the course of business. But the facts arising in the present case are different from the facts arising in the above said decision. So also, learned counsel appearing for the assessee relied upon another decision of the Madhya Pradesh High Court in the case of CIT vs. Durga Jewellers (1988) 172 ITR 134 (MP). According to the facts arising in the decision, a theft had taken place in the business premises of the assessee. The FIR was lodged by the assessee indicating the extent of the property which had been stolen. The police was successful in recovering the major portion of the property stolen which was returned to the assessee. A final report was made by the police stating that some of the properties were not recoverable. It is on this basis that the claim made by the assessee for deduction of Rs. 25,000 being the value of the unrecovered goods which had been stolen, was allowed as deduction. But, in the present case, there is no evidence on record to show that money was handed over to the said Balakrishnan, and the case of embezzlement filed against the said Balakrishnan ended in acquittal and damages were awarded for filing a false complaint. In such circumstances, the abovecited two decisions would not render any assistance to establish the case put forward by the assessee. Inasmuch as, the Tribunal came to the conclusion on an appraisal of facts that the loss was not proved by the assessee, we consider that no referable question of law arises out of the order of the Tribunal as framed and suggested at the instance of the assessee. Accordingly, we answer all the questions in the affirmative and against the assessee. There will be no order as to costs.