M/s. C.G. Marketing Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 2125/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1666 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 27-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIPUL WAGHMARE
• Assessee Lawyers: R G NAHAR
• Section: 37

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE ! ' , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA NO.2125/PN/2014 ASSESSMENT YEAR : 2008-09 M/S C G MARKETING PVT. LTD., KHANDELWAL JAIN & ASSOCIATES, ALANKAR CINEMA BUILDING, 1 ST FLOOR, ABOVE UNITED BANK, PUNE 411 001. PAN: AABCC7475M .. APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. ... RESPONDENT / APPELLANT BY : SHRI R. G. NAHAR / DEPARTMENT BY : SHRI VIPUL WAGHMARE / DATE OF HEARING : 05.05.2016 / DATE OF PRONOUNCEMENT: 29.06.2016 % / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- I, PUNE DATED 30.06.2014 FOR THE ASSESSMENT YEAR 2008-09. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE COMPANY IS A DISTRIBUTOR OF M/S. PROCTER AND GAMBLE . THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 30.09 .2008 DECLARING TOTAL INCOME OF RS.1,99,00,520/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND 2 ITA NO.2125/PN/2014 ACCORDINGLY NOTICE UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE ON 18.09.2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER DISALLOWED THE EXPENDITURES CLAIMED TOWARDS LOSS OF CASH RS.1,18,6 14/- AND EXPENDITURE TOWARDS STAFF WELFARE, OFFICE MAINTENANCE, DAILY ALLOWANCE, ETC. RS.3,00,000/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 27.12.2010, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) UPHELD THE FINDINGS OF THE ASSESSING OFFICER WITH REGARD TO LOSS OF CASH. IN RESPECT OF AD-HOC DISALLOWANCE OF EXPENSES ON ACCOUNT OF STAFF WELFARE, OFFICE MAINTE NANCE, DAILY ALLOWANCE, ETC., THE CIT(A) SUSTAINED THE ADDITION TO THE EXTENT OF RS.2 ,00,000/-. AGAINST THE ORDER OF CIT(A), THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. SHRI R. G. NAHAR APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE SUBJECT TO AU DITED UNDER SECTION 44AB AND THE TURNOVER OF THE ASSESSEE DURING THE PERIOD RELE VANT TO ASSESSMENT YEAR 2008-09 WAS RS.4,45,04,20,808/-. THERE WAS THEFT/E MBEZZLEMENT INCIDENT IN JOGESHWARI BRANCH AND THANE BRANCH OF THE ASSESSEE AND CASH TO THE TUNE OF RS.25,500/- WAS MISAPPROPRIATED AT JOGESHWARI BRANC H AND ANOTHER SUM OF RS.76,461/- ALONG WITH MISCELLANEOUS MATERIAL HAVIN G VALUE OF RS.8,000/-, APPROXIMATELY WAS STOLEN FROM THANE BRANCH. THE AS SESSEE HAD CLAIMED THE AFORESAID LOSS OF CASH/MATERIAL AS EXPENDITURE ALLO WABLE UNDER SECTION 37 OF THE ACT. HOWEVER, THE CLAIM OF THE ASSESSEE WAS REJECT ED BY PLACING RELIANCE ON THE JUDGEMENT OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF ASSOCIATED BANKING CORPORATION OF INDIA VS. CIT REPORTED AS 56 ITR 1 ( SC). THE LD. AR DRAWS OUR ATTENTION TO THE FIRS REGISTERED IN RESPECT OF AFOR ESAID THEFT CASES AT POLICE STATION, JOGESHWARI AND POLICE STATION, THANE. THE LD. AR S UBMITTED THAT THE CASE OF THE ASSESSEE IS DISTINGUISHABLE OF FACTS. IN THE CASE OF THE ASSESSEE, EMBEZZLEMENT OF CASH/THEFT HAS BEEN COMMITTED BY UNKNOWN PERSONS. WHEREAS IN THE CASE OF THE ASSOCIATED BANKING CORPORATION OF INDIA VS. CIT (SU PRA) THE EMBEZZLEMENT WAS 3 ITA NO.2125/PN/2014 DONE BY PERSONS WHO WERE IDENTIFIED. THUS, THE HON BLE APEX COURT HELD THAT THE EMBEZZLEMENT OF FUNDS MAY BE RESTORED BY THE AGENTS , WHEREAS IN THE CASE OF THE ASSESSEE IT IS STILL UNKNOWN AS TO WHO HAS EMBEZZLE D/MISAPPROPRIATED THE CASH/MATERIAL. IN SUCH CIRCUMSTANCES, THE LOSS SUF FERED BY ASSESSEE IS ALLOWABLE UNDER SECTION 37 OF THE ACT. IN SUPPORT OF HIS SUB MISSIONS, THE LD. AR PLACED RELIANCE ON THE DECISION OF THE HONBLE PUNJAB & HA RYANA HIGH COURT IN THE CASE OF CIT VS. SMT. PUKHRAJ WATI BUBBER REPORTED AS 296 IT R 290 (P&H). IN RESPECT OF AD-HOC DISALLOWANCE OF RS.2,00,000/- ON ACCOUNT OF STAFF WELFARE, OFFICE MAINTENANCE, DAILY ALLOWANCE, ETC., THE LD. AR SUBMITTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE SUBJECT TO AU DIT. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC INSTANCE WHERE THE EXP ENDITURE IS NOT VERIFIABLE. THE ASSESSING OFFICER HAS MADE GENERAL REMARKS THAT SOM E OF THE EXPENDITURES ARE SUPPORTED BY SELF MADE VOUCHERS ALONE. THE LD. AR CONTENDED THAT IN THE SUBSEQUENT ASSESSMENT YEAR A SIMILAR DISALLOWANCE W AS MADE BY THE ASSESSING OFFICER, BUT THE CIT(A) GRANTED RELIEF TO THE ASSES SEE IN TOTO . 4. ON THE OTHER HAND, SHRI VIPUL WAGHMARE REPRESENT ING THE DEPARTMENT STRONGLY SUPPORTED THE FINDINGS OF THE CIT(A) ON BO TH THE ISSUES. THE LD. DR SUBMITTED THAT THE CIT(A) HAS RIGHTLY OBSERVED THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF EMBEZZLED/THEFT OF CASH FROM ITS BRANCHE S AT JOGESHWARI AND THANE IS PREMATURE. MERELY FIR WAS REGISTERED IN RESPECT OF THEFT. INVESTIGATIONS WERE YET TO BE COMPLETED AND IN SUCH CIRCUMSTANCES THE CLAIM OF THE ASSESSEE UNDER SECTION 37 WAS NOT MAINTAINABLE. IN RESPECT OF AD-HOC DISALLOWANCE OF RS.2,00,000/-, THE LD. DR CONTENDED THAT THERE WAS INCREASE IN THE TUR NOVER OF THE ASSESSEE OF ABOUT 19% WHEREAS, THE INCREASE IN THE EXPENDITURE FOR ST AFF WELFARE WAS 31%, AND 70% IN CASE OF OFFICE MAINTENANCE. THERE WAS NO JUSTIF ICATION FOR SUCH HUGE INCREASE IN EXPENDITURE AND SOME OF THE EXPENDITURES CLAIMED BY THE ASSESSEE WERE NOT 4 ITA NO.2125/PN/2014 VERIFIABLE. THE LD. DR PRAYED FOR SUSTAINING THE I MPUGNED ORDER AND DISMISSING THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE DOCUMENTS PLACED ON RECORD IN THE FORM OF PAPER BOOK BY THE ASSESSEE . IN THE PRESENT APPEAL, THE ASSESSEE HAS ASSAILED THE FINDINGS OF CIT(A) ON TWO GROUNDS :- (I) DISALLOWANCE OF CASH LOSS OF RS.1,18,614/- ON A CCOUNT OF THEFT/MISAPPROPRIATION OF FUNDS, AND (II) AD-HOC DISALLOWANCE OF RS.2,00,000/- ON ACCOUNT OF STAFF WELFARE EXPENSES, OFFICE MAINTENANCE, DAILY ALLOWANCE, ETC. 6. IT IS AN UNDISPUTED FACT THAT THEFT/MISAPPROPRIA TION INCIDENT HAS TAKEN PLACE AT JOGESHWARI BRANCH AND THANE BRANCH OF THE ASSESSEE WHEREIN THE ASSESSEE HAS ALLEGEDLY SUFFERED LOSS OF RS.25,500/- AND RS.76,46 1/-, RESPECTIVELY AND MATERIAL LOSS OF RS.8,000/-. A PERUSAL OF FIRS IN RESPECT O F REPORTED CASES SHOW THAT NO SPECIFIC PERSON HAS BEEN NAMED FOR SUCH CASH/MATERI AL LOSS. THE FIRS HAVE BEEN REGISTERED AGAINST UNKNOWN PERSONS. THE LD. AR HAS STATED AT THE BAR THAT TILL DATE THE ACCUSED PERSONS HAVE NOT BEEN IDENTIFIED AND TH ERE HAS BEEN NO RECOVERY OF THE THEFT/MISAPPROPRIATED AMOUNT/MATERIAL. THE ASS ESSEE HAS SUFFERED LOSS ON ACCOUNT OF THEFT/MISAPPROPRIATION OF FUNDS/MATERIAL DURING THE COURSE OF BUSINESS. IN SUCH CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIE W THAT THE LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF THEFT/MISAPPROPRIATION OF FU NDS IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE ACT. OUR THIS VIEW IS FURT HER SUPPORTED BY THE DECISION RENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. PUKHRAJ WATI BUBBER (SUPRA). IN SAID CASE, THE HON BLE HIGH COURT AFTER CONSIDERING VARIOUS JUDGEMENTS INCLUDING THE DECISI ON OF THE HONBLE APEX COURT IN 5 ITA NO.2125/PN/2014 THE CASE OF ASSOCIATED BANKING CORPORATION OF INDIA VS. CIT (SUPRA) HAS HELD THAT LOSS ARISING FROM EMBEZZLEMENT IS AN ALLOWABLE EXPE NDITURE. THE HONBLE HIGH COURT AFTER CONSIDERING THE FACTS OF THE CASE AND V ARIOUS DECISIONS HELD AS UNDER :- WE HAVE HEARD LEARNED COUNSEL FOR THE REVENUE AND PERUSED THE FINDINGS RECORDED. THE LIABILITY TO TAX IS ON PROFITS OR GAINS OF BUSI NESS COMPUTED IN ACCORDANCE WITH SECTIONS 30 TO 43D OF THE INCOME-TAX ACT, 1961 (FOR SHORT, 'THE ACT'). THOUGH THERE IS NO PROVISION FOR ALLOWING DEDUCTION OF A TRADING LOSS ON ACCOUNT OF EMBEZZLEMENT, SECTION 37 OF THE ACT PROVIDES FOR ANY EXPENDITURE FOR THE PURPOS E OF BUSINESS AND THERE HAS TO BE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS. IF THE LOSS WAS DIRECTLY CONNECTED WITH THE BUSINESS OPERATION AND INCIDENTAL TO CARRYING ON OF THE BUSINESS, THE SAME HAS TO BE ALLOWED AS A DEDUCTION. IN BADRIDAS DAGA V. CIT [1958] 34 ITR 10 (SC), AN AGENT OF THE ASSESSEE WITHDREW AMOUNT FROM BANK AND MISAPPROPRIATED THE SAME. IT W AS HELD THAT HAVING REGARD TO ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES , IT COULD BE HELD THAT LOSS AROSE OUT OF CARRYING ON OF BUSINESS AND WAS INCIDENTAL TO IT. T HE SAME PRINCIPLE WAS FOLLOWED IN CIT V. NAINITAL BANK LIMITED [1965] 55 ITR 707 (SC). IN TH E SAID CASE, CASH AMOUNT WAS STOLEN IN A DACOITY. IN RAMCHANDAR SHIVNARAYAN V. CIT [1978] 11 1 ITR 263 (AP), AFTER REVIEW OF CASE LAW ON THE POINT, IT WAS HELD THAT LOSS ON ACCOUNT OF THEFT HAD TO BE TREATED AS TRADING LOSS AS IT WAS DIRECTLY CONNECTED WITH THE BUSINESS OPERATI ON AND WAS INCIDENTAL TO CARRYING ON OF BUSINESS. FOLLOWING THE LAW LAID DOWN IN THE ABOVE JUDGMENTS , WE ARE OF THE VIEW THAT THE TRIBUNAL WAS JUSTIFIED IN ALLOWING DEDUCTION ON ACC OUNT OF EMBEZZLEMENT WHICH WAS HELD TO BE INCIDENTAL TO THE CARRYING ON OF THE BUSINESS AN D SINCE THERE WAS DIRECT AND PROXIMATE CONNECTION AND NEXUS BETWEEN THE LOSS AND THE BUSIN ESS OPERATION OF THE ASSESSEE. THE QUESTION REFERRED IS THUS ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THUS, IN VIEW OF THE FACTS OF THE INSTANT CASE AND THE DECISION OF THE HONBLE HIGH COURT, WE ACCEPT THE CLAIM OF THE ASSESSEE RAI SED IN GROUND NO.1 OF THE APPEAL AND HOLD THAT THE EXPENDITURE OF RS.1,18,614 /- IS ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE ACT, BEING INCIDENTAL TO TH E CARRYING ON OF BUSINESS. 7. IN SO FAR AS AD-HOC DISALLOWANCE OF RS.2,00,000/- ON ACCOUNT OF UNVERI FIABLE EXPENDITURE TOWARDS STAFF WELFARE, OFFICE MAINTENAN CE, DAILY ALLOWANCE, ETC. IS CONCERNED, WE FIND THAT THE DISALLOWANCE HAS BEEN M ADE MERELY ON THE PRESUMPTION THAT THE INCREASE IN EXPENDITURE CLAIME D BY THE ASSESSEE IS MUCH MORE THAN INCREASE IN TURNOVER. IT IS AN UNDISPUTE D FACT THAT THE ACCOUNTS OF THE ASSESSEE ARE SUBJECT TO AUDIT. THE AUTHORITIES BEL OW HAVE NOT SPECIFIED ANY INSTANCES WHERE THE EXPENDITURE CLAIMED BY THE ASSE SSEE IS NOT VERIFIABLE OR ARE 6 ITA NO.2125/PN/2014 NOT SUPPORTED BY VALID MATERIAL. THE ASSESSING OFF ICER MADE AD-HOC DISALLOWANCE OF RS.3,00,000/-, WHICH WAS REDUCED TO RS.2,00,000/ - IN THE FIRST APPELLATE PROCEEDINGS. WE FIND THAT THERE IS NO JUSTIFICATIO N FOR MAKING SUCH DISALLOWANCE. IN THE FACTS OF THE CASE, WE DO NOT FIND ANY MERIT IN MAKING OF SUCH DISALLOWANCE ON PRESUMPTIONS ALONE. THE DISALLOWANCE OF RS.2,00,00 0/- MADE ON ACCOUNT OF STAFF WELFARE, OFFICE MAINTENANCE, DAILY ALLOWANCE, ETC. IS DELETED AND THE GROUND NO.2 RAISED IN THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE IMPUGNED ORDER IS SET-ASIDE A ND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 29 TH DAY OF JUNE, 2016. SD/- SD/- ( R.K. PANDA ) ( VIKAS AWASTHY ) / ACCOUNTANT MEMBER # / JUDICIAL MEMBER PUNE ; DATED : 29 TH JUNE, 2016. %&'#()!*!+( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE