The ACIT, Visakhapatnam V. M/s. Five Star Trading Co, Visakhapatnam

ITA 313/VIZ/2016

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9927 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Section: 143(3); 37; 263

Judgement Text

ITA NO.313/VIZAG/2016 & CO 46/VIZAG/2016 M/S. FIVE STAR TRADING CO., VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER ./I.T.A.NO.313/VIZAG/2016 ( / ASSESSMENT YEAR: 2007-08) ACIT, CIRCLE - 1(1), VISAKHAPATNAM VS. M/S. FIVE STAR TRADING CO., VISAKHAPATNAM [PAN: AABFF 2572P ] ( / APPELLANT) ( ! / RESPONDENT) C.O. NO.46/VIZAG/2016 (ARISING OUT OF I.T.A.NO.313/VIZAG/2016) ( / ASSESSMENT YEAR: 2007-08) M/S. FIVE STAR TRADING CO., VISAKHAPATNAM VS. ACIT, CIRCLE - 1(1), VISAKHAPATNAM ( / APPELLANT) ( ! / RESPONDENT) / APPELLANT BY : SHRI M.K. SETHI, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 19.08.2016 / DATE OF PRONOUNCEMENT : 29.08.2016 ITA NO.313/VIZAG/2016 & CO 46/VIZAG/2016 M/S. FIVE STAR TRADING CO., VISAKHAPATNAM 2 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-1, VISAKHAPATNAM DATED 31.3.2016 FOR THE ASS ESSMENT YEAR 2007-08. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER PASSED BY LD. CIT(A)-1, VISAKHAPATNAM. 2. FACTS ARE IN BRIEF THAT ASSESSEE FIRM HAD FILED A RETURN OF INCOME ADMITTING TOTAL INCOME OF ` 30,07,910/-. THE RETURN FILED BY THE ASSESSEE IS SELECTED FOR SCRUTINY AND AFTER FOLLOWI NG THE DUE PROCEDURE, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME T AX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') AND ACCEPTED THE RETURN OF INCOME FILED BY THE ASSESSEE. SUBSEQUENTLY, THE CIT-1, VISAKHAP ATNAM PASSED AN ORDER U/S 263 OF THE ACT DATED 27.1.2012 DIRECTING THE A.O. TO RE-DO THE ASSESSMENT DE-NOVO AFTER CONSIDERING ALL THE ISSUES CONSEQUENT TO THE ORDER PASSED BY THE LD. COMMISSIONER U/S 263 OF THE ACT. THE A.O. HAS COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 263 OF T HE ACT BY DETERMINING TOTAL INCOME AT ` 38,77,185/-. WHILE COMPLETING THE ASSESSMENT, THE A.O. HAS DISALLOWED AN AMOUNT OF ` 8,69,275/- AS CLAIMED BY THE ASSESSEE TOWARDS EMBEZZLEMENT LOSS. ITA NO.313/VIZAG/2016 & CO 46/VIZAG/2016 M/S. FIVE STAR TRADING CO., VISAKHAPATNAM 3 3. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN A PPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), IT WAS SUBMITTED THAT O NE OF THE EMPLOYEE OF THE ASSESSEE EMBEZZLED AN AMOUNT OF ` 8,69,275/- AND THE ASSESSEE GAVE A COMPLAINT TO THE POLICE AND ALSO LOSS WAS CL AIMED BEFORE THE INSURANCE COMPANY. HOWEVER, ASSESSEE IS NOT ABLE T O RECOUP THE AMOUNT AND THEREFORE, THE CLAIM IS A BUSINESS LOSS U/S 37 OF THE ACT. 4. THE LD. CIT(A) AFTER CONSIDERING THE ABOVE SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT IT IS AN UNDISPUTED FACT THA T ASSESSEES EMPLOYEE EMBEZZLED THE AMOUNT OF ` 8,69,275/- OUT OF THE COLLECTIONS MADE FROM THE SHOP OWNERS/DEALERS OF THE ASSESSEE. HE IS OF THE OPINION THAT THE ASSESSEE MADE ALL THE ATTEMPTS, HOWEVER, HE IS NOT ABLE TO RECOVER THE EMBEZZLEMENT AMOUNT AND HENCE THIS IS CLEARLY ALLOW ABLE CLAIM U/S 37 OF THE ACT AND DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE. 5. ON BEING AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY SU PPORTED THE ORDER PASSED BY THE LD. CIT(A). 7. ON THE OTHER HAND, THE LD. D.R. HAS SUPPORTED TH E ORDER PASSED BY THE A.O. ITA NO.313/VIZAG/2016 & CO 46/VIZAG/2016 M/S. FIVE STAR TRADING CO., VISAKHAPATNAM 4 8. I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE BUSINE SS LOSS CLAIMED BY THE ASSESSEE OF ` 8,69,275/- IS ALLOWABLE OR NOT. IT IS AN UNDISPUT ED FACT THAT ASSESSEES EMPLOYEE EMBEZZLED THE AMOUNT. ASS ESSEE HAS MADE A CLAIM BEFORE THE INSURANCE COMPANY AS WELL AS POLIC E COMPLAINT ALSO GIVEN, HOWEVER, ASSESSEE IS NOT ABLE TO RECOVER THE SAME. THE A.O. HAS NOT DISPUTED THE LOSS SUFFERED BY THE ASSESSEE. AC CORDING TO THE A.O., IT IS NOT ALLOWABLE U/S 37 OF THE ACT. WHEN THE ASSES SEE SUFFERED A LOSS IN CONNECTION WITH THE BUSINESS, IN OUR OPINION, IT IS A BUSINESS LOSS AND IT IS ALLOWABLE U/S 37 OF THE ACT. THE LD. CIT(A) OF THE OPINION THAT THE BUSINESS LOSS SUFFERED BY THE ASSESSEE IS ALLOWABLE U/S 37 OF THE ACT. THE RELEVANT PORTION OF THE ORDER OF LD. CIT(A) IS EXTRACTED AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS. I HAVE ALSO PERUSED THE ASSESSMENT ORDER, STATEMENT OF FACTS AN D OTHER DETAILS. I FIND FR4OM THE ASSESSMENT ORDER AND THE ASSESSEES WRITT EN SUBMISSIONS, THE FOLLOWING FACTS: 6.1 DURING THE PREVIOUS YEAR RELEVANT FOR THE IMPUN GED ASSESSMENT YEAR, ONE OF THE ASSESSEES SALES EXECUTIVES, MR. G . APPALA REDDY, OUT OF THE COLLECTIONS MADE FROM THE CUSTOMERS OF THE ASSE SSEE EMBEZZLED AN AMOUNT OF ` 8,69,275/-. ON DISCOVERY OF THIS EMBEZZLEMENT, TH E ASSESSEE FILED POLICE COMPLAINT. AFTER POLICE VERIFICATION, MR. G. APPALA REDDY ADMITTED THE CRIME AND UNDERTOOK TO REPAY THE AMOUN T. SUBSEQUENTLY, HE ISSUED A CHEQUE FOR THIS AMOUNT TO THE ASSESSEE. H OWEVER, THE ASSESSEE COULD NOT ENCASH THIS CHEQUE AS THERE WAS NO BALANC E IN THE BANK ACCOUNT OF MR. G. APPALA REDDY. FINALLY, THE ASSESSEE FILE D A POLICY CLAIM BEFORE THE UNITED INDIA INSURANCE CO. LTD. HOWEVER, THE IN SURANCE COMPANY DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COULD HAVE PROCEEDED TO RECOVER THE AMOUNT FROM G. APPALA REDDY. HENCE, THE ITA NO.313/VIZAG/2016 & CO 46/VIZAG/2016 M/S. FIVE STAR TRADING CO., VISAKHAPATNAM 5 ASSESSEE TREATED THE AMOUNT AS IRRECOVERABLE LOSS A ND CLAIMED THE SAME AS BAD DEBT. THE A.O. TOOK THE VIEW THAT THE ASSES SEE DID NOT MAKE ALL EFFORTS TO RECOVER THE AMOUNT. 6.2 THE UNDISPUTED FACT IS THAT THE ASSESSEES EMPL OYEE EMBEZZLED THE AMOUNTS AGGREGATING TO ` 8,69,275/- OUT OF THE COLLECTIONS MADE FROM THE SHOP OWNERS/DEALERS OF THE ASSESSEE. ALL THE EFFOR TS OF THE ASSESSEE DID NOT RESULT IN RECOVERY OF THE EMBEZZLED AMOUNT. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE SUFFERED REVENUE LOSS. THIS IS C LEARLY AN ALLOWABLE CLAIM U/S 37 OF THE I.T. ACT. CONSIDERING THE ABOVE FACTS AND ALSO CONSIDERING THE DECISIONS RELIED ON BY THE AR OF THE ASSESSEE, I AM OF THE VIEW THAT THE AO IS NOT JUSTIFIED IN NOT ALLOWING THE ASSESSE ES CLAIM FOR LOSS OF ` 8,69,275/-. ACCORDINGLY, THE AO IS DIRECTED TO ALL OW THE CLAIM OF THE ASSESSEE MADE TOWARDS EMBEZZLEMENT LOSS OF ` 8,69,275/-. 9. IN VIEW OF MY OBSERVATION ABOVE AND ALSO BY CONS IDERING THE ORDER PASSED BY THE LD. CIT(A), I AM OF THE OPINION THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 10. SO FAR AS C.O. FILED BY THE ASSESSEE IS CONCERN ED, IT IS ONLY SUPPORTING THE ORDER PASSED BY THE LD. CIT(A). IN VIEW OF MY ABOVE ORDER, IT BECOME INFRUCTUOUS AND ACCORDINGLY DISMIS SED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29 TH AUG16. SD/- ( . ) (V. DURGA RAO) /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 29.08.2016 VG/SPS ITA NO.313/VIZAG/2016 & CO 46/VIZAG/2016 M/S. FIVE STAR TRADING CO., VISAKHAPATNAM 6 '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-1(1), VISAKHAPA TNAM 2. / THE RESPONDENT M/S. FIVE STAR TRADING CO., D.N O.14-1-99, HORIZON ENCLAVE, NOWROJI ROAD, MAHARANIPETA, VISAKHAPATNAM 3. ) / THE PRINCIPAL CIT-1, VISAKHAPATNAM 4. ) ( ) / THE CIT(A)-1, VISAKHAPATNAM 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM