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Unascertained Business Loss Cannot Be Allowed As Deduction

Citation : Avijit Dewanjee vs The Deputy Commissioner of Income Tax, ITA No.3249/Bang/2018

Date of Judgment/Order : 23.02.2022

Court/Tribunal : Income Tax Appellate Tribunal “B” Bench : Bangalore

Corum: Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member

Background

In this case, the assessee claimed a sum of Rs.2,46,36,701 as loss on account of embezzlement of cash which was done by one of the employees of the assessee. The contention of the Appellant was that the cashier while working in the assessee’s firm embezzled cash on day to day basis which came to be known in the assessment year under consideration against which assessee lodged a FIR and also charge sheet is filed and the case is pending before the Court. the loss by embezzlement by employee should be treated as incidental to the business and this loss should be allowed as deduction in the year in which it is discovered. 

Judgment

Even if the cash is kept for business purposes, the assessee should see the reasonable process of recovery of amount of embezzlement. Unless recovery is impossible, it could not be stated that it is a business loss in a commercial sense.

In the present case, till the point of time the assessee entertained the hope of recovering the loss, the said amount cannot be allowed as a deduction in this assessment year under consideration, as the assessee has not ascertained the loss in the books of account and it is shown as sundry debtors suspense account without charging it to the P&L account. At this stage, it is not possible to hold that it is ascertained liability to allow the loss as a deduction.


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