The Haryana State Cooperative Supply and Marketing Federation Limited, Panchkula V. Addl. CIT, Panchkula

ITA 324/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90093 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 12-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Assessee Lawyers: HARISH NAYYAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 324/CHD/2012 (ASSESSMENT YEAR : 2008-09) THE HARYANA STATE COOPERATIVE SUPPLY VS. THE ADDL.CIT, AND MARKETING FEDERATION LIMITED, PANCHKULA RANGE, PANCHKULA. PANCHKULA. PAN: AAAJH0022R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARISH NAYYAR RESPONDENT BY : DR.AMARVEER SINGH, DR DATE OF HEARING : 13.04.2015 DATE OF PRONOUNCEMENT : .04.2015 O R D E R PER BHAVNESH SAINI, J.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), PANCHKULA DATED 11.1.2012 FOR ASSESSM ENT YEAR 2008-09, CHALLENGING THE DISALLOWANCE OF RS.3. 19 CRORES UNDER THE HEAD EMBEZZLEMENT AND SHORTAGE. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO SUBMIT THE STATUTORY AUDIT REPORT WHICH IS DONE BY THE AUDITOR, COOPERATIVE SOCIETIES. IN THE AUDIT REPO RT PLACED ON RECORD, SUMMARY OF SOME SERIOUS IRREGULARITIES W AS 2 NOTICED DURING THE COURSE OF AUDIT OF HAFED UNITS/O FFICES FOR THE YEAR 2007-08. IN PART-B IT IS MENTIONED T HAT EMBEZZLEMENT AND SHORTAGE WORTH RS.3.19 CRORES WAS NOTICED AGAINST SHRI SHALESH KUMAR GUPTA, ACCOUNTAN T C- GRADE WORKING MANAGER, WSD HODAL BOOKED AS SUSPENSE RECOVERABLE ACCOUNT NEEDS IMMEDIATE ATTENTION OF TH E MANAGEMENT. THE ASSESSEE WAS CONFRONTED ON THIS FACT AND THE ASSESSEE STATED THAT THERE WAS EMBEZZLEMENT TO THE TUNE OF RS.3.10 CRORES AT WSD, HODAL FARIDABAD BY S HRI SHALESH KUMAR GUPTA, EX. ACCOUNTANT DURING THE YEAR 2006-07. AS SOON AS THE SCAM CAME TO THE NOTICE, FIR NO.197 DATED 20.7.2006 WAS LODGED BY THE D.O., HAFE D, FARIDABAD AT POLICE STATION, HODAL AGAINST SHRI SHA LESH KUMAR GUPTA. THE ASSESSING OFFICER ON SUBMISSION OF THE ASSESSEE FOUND THAT THE EMBEZZLEMENT RELATES TO THE ASSESSMENT YEAR 2007-08 AND WAS DETECTED IN THE SAM E YEAR AS IS EVIDENT FROM THE FIR FILED. AS THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, THIS EXPENDITURE R ELATES TO ASSESSMENT YEAR 2007-08 AND EVEN IF IT HAD TO BE CL AIMED BY THE ASSESSEE, SHOULD HAVE BEEN MADE IN THE PREVIOUS YEAR. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED RS.3. 19 CRORES AND ADDED TO THE INCOME OF THE ASSESSEE. 3. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE IN THE WRITTEN SUBMISSION STATED THAT THE AMOUNT OF RS .3.19 CRORES ON ACCOUNT OF EMBEZZLEMENT DETECTED HAS NEIT HER BEING CLAIMED AS EXPENDITURE FOR INCOME TAX PURPOSE S PRIOR TO ASSESSMENT YEAR 2008-09 NOR CLAIMED THEREAFTER. IT WAS 3 CLAIMED THAT THE LIABILITY AROSE DURING THIS YEAR, THEREFORE, DEDUCTION MAY BE ALLOWED. THE LEARNED CIT (APPEAL S) CONSIDERING THE SUBMISSION OF THE ASSESSEE FOUND TH AT THE LIABILITY ON ACCOUNT OF EMBEZZLEMENT AMOUNTING TO 3 .19 CRORES PERTAINS TO THE EARLIER ASSESSMENT YEAR I.E. 2007-08. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING. THEREFORE, THE EXPENDITURE CANNOT BE CLAIMED IN THE ASSESSMENT YEAR 2008-09 UNDER APPEAL. THIS GROUN D WAS ACCORDINGLY DISMISSED. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON R ECORD. IT IS NOT IN DISPUTE THAT THE AUDITOR OF THE COOPER ATIVE SOCIETIES FOUND IRREGULARITIES IN THE COURSE OF THE AUDIT OF HAFED UNITS/OFFICES AND IT WAS FOUND THAT THERE WAS AN EMBEZZLEMENT COMMITTED OF RS.3.19 CRORES BY THE EMP LOYEE OF THE ASSESSEE. THE LEARNED COUNSEL FOR ASSESSEE ALSO ADMITTED THAT THE EMBEZZLEMENT TO THE TUNE OF RS.3. 19 CRORES WAS NOTICED IN THE FINANCIAL YEAR 2006-07 AN D FIR WAS LODGED WITH THE CONCERNED POLICE STATION ON 20. 7.2006. THEREFORE, THE EMBEZZLEMENT WAS FOUND TO HAVE BEEN RELATED TO THE PRECEDING ASSESSMENT YEAR 2007-08 WHEN THE EMBEZZLEMENT WAS DETECTED AND FIR WAS REGISTERED ON 20.7.2006. IT IS ALSO ADMITTED FACT THAT THE A SSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREF ORE, THE ASSESSEE SHALL HAVE TO BOOK THE EXPENDITURE IN THE YEAR WHEN SUCH EMBEZZLEMENT WAS DISCOVERED. THE HON'BL E 4 GUJRAT HIGH COURT IN THE CASE DINESH MILLS LTD. VS. CIT, 254 ITR 673 (GUJ.) HELD AS UNDER : THE ASSESSEE CARRIED ON BUSINESS IN TEXTILES MAINTAINED MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE INCURRED A LOSS OF RS.13,40,000 ON ACCOUNT OF EMBEZZLEMENT BY IT IS EMPLOYEE BETWEEN JANUARY 29, 1974 AND APRIL 26, 1976. THE ASSESSEE DISCOVERED T HE LOSS DURING THE ASSESSMENT YEAR 1977-78 AND CLAIMED THE ENTIRE LOSS AS DEDUCTION IN THAT YEAR. THE ASS ESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT THE EXTENT OF LOSS REMAINED INDETERMINATE OR UNKNOWN DURING THE ASSESSMENT YEAR IN QUESTION AND THE AMOU NT OF ACTUAL LOSS COULD BE KNOWN ONLY WHEN THE ASSESSE E ENTERED INTO A COMPROMISE DECREE WITH THE DEFAULTER EMPLOYEE IN THE CALENDAR YEAR 1980. THE COMMISSION ER (APPEALS) CONSIDERED THE WHOLE AMOUNT OF EMBEZZLEME NT IN TWO PARTS, ONE WHICH COULD BE REASONABLY BE ESTIMATED TO BE RECOVERABLE AND THE OTHER WHICH COU LD NOT BE REASONABLY EXPECTED TO BE RECOVERABLE AND ASCERTAINED THE POSITION AT THE END OF THE PREVIOUS YEAR, VIZ., AS ON DECEMBER 31, 1976. BASED ON THIS, THE COMMISSIONER (APPEALS) HELD THAT THE ASSESSEE COULD HAVE REASONABLY HOPED TO RECOVER A SUM OF RS.7,20,0 00 WHILE THE BALANCE OF RS.6,20,000 WAS LOST BY THE ASSESSEE FOR ALL TIME TO COME AND GRANTED DEDUCTION OF A SUM OF RS.6,20,000 IN THE ASSESSMENT YEAR 1977-78. THE TRIBUNAL ACCEPTED THAT THE LOSS WAS INCIDENTAL TO THE BUSINESS AND UPHELD THE ORDER OF THE COMMISSION ER (APPEALS). ON A REFERENCE : HELD, THAT IN VIEW OF THE STATEMENT MADE ON BEHALF OF THE ASSESSEE TO THE EFFECT THAT NO DEDUCTION HAD BEEN ALLOWED IN ANY SUBSEQUENT YEAR, THE ASSESSEE WOULD BE ENTITLELD TO DEDUCTION OF LOSS DURING THE ASSESSMEN T YEAR IN QUESTION AS THIS WAS THE YEAR IN WHICH THE LOSS ON ACCOUNT OF EMBEZZLEMENT WAS IN FACT, DISCOVERED. 5 THE TRIBUNAL HAD TO ASCERTAIN THE ALLOWABILITY OR OTHERWISE OF EMBEZZLEMENT LOSS IN THE LIGHT OF THE STATEMENT MADE ON BEHALF OF THE ASSESSEE AND THEN ALLOW DEDUCTION OF THE BALANCE AMOUNT OF LOSS IN TH E YEAR UNDER CONSIDERATION. 5. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF DINESH MILLS LTD., AS NOTED ABOVE, HELD THAT THE AS SESSEE WOULD BE ENTITLED TO DEDUCTION OF LOSS DURING THE A SSESSMENT YEAR IN QUESTION AS THIS WAS THE YEAR IN WHICH THE LOSS ON ACCOUNT OF EMBEZZLEMENT WAS IN FACT DISCOVERED. IN THE AFORESAID JUDGMENT THE SUBMISSIONS OF THE PARTIES H AVE ALSO BEEN RECORDED AND THE ASSESSEE REFERRED TO BEFORE T HE TRIBUNAL THE CBDT CIRCULAR NO.35-D OF 1965 DATED 24.11.1965 AND LAST PARA OF THE CIRCULAR WAS REPROD UCED BY THE TRIBUNAL IN WHICH TWO ASPECTS HAVE BEEN PROVIDE D IN THE CIRCULAR ; FIRST, THAT SUCH EMBEZZLEMENT LOSS INCUR RED BY THE ASSESSEE BECAUSE OF THE EMPLOYEES HAD TO BE TREATED TO BE INCIDENTAL TO THE BUSINESS AND THE SECOND PART WAS THAT THE DEDUCTION HAVE TO BE ALLOWED IN THE YEAR IN WHICH T HE LOSS WAS DISCOVERED. CONSIDERING THE FACTS OF THE PRES ENT CASE IT IS CLEAR THAT THE LOSS ON ACCOUNT OF EMBEZZLEMEN T WAS DISCOVERED BY THE ASSESSEE IN THE FINANCIAL YEAR 20 06-07 AND FIR WAS REGISTERED ON 20.7.2006. THEREFORE, S INCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, THEREFORE, THE LOSS ON ACCOUNT OF EMBEZZLEMENT WAS DISCOVERED AND WAS RELATED TO THE ASSESSMENT YEAR 2 007-08 I.E. THE PRECEDING ASSESSMENT YEAR AND NOT THE ASSE SSMENT YEAR 2008-09 UNDER APPEAL. THE ASSESSEE MERELY SU BMITTED BEFORE THE LEARNED CIT (APPEALS) THAT THE EXPENDITU RE IS 6 CLAIMED IN ASSESSMENT YEAR UNDER APPEAL I.E. THE 20 08-09 AND NO EXPENDITURE HAVE BEEN CLAIMED IN EARLIER YEA R OR SUBSEQUENT YEAR. THIS CONTENTION OF THE ASSESSEE HAS NO FORCE BECAUSE THE ASSESSEE CANNOT CHOOSE TO CLAIM D EDUCTION OF THE EXPENDITURE OF THEIR OWN IN ANY OF THE ASSES SMENT YEAR BECAUSE THE ASSESSEE SHALL HAVE TO CLAIM DEDUC TION OF THE EXPENDITURE ONLY IN ACCORDANCE WITH LAW AND THE EXPENDITURE SHOULD RELATE TO THE ASSESSMENT YEAR RE LEVANT TO THE PREVIOUS YEAR IN WHICH SUCH EMBEZZLEMENT HAS BE EN DISCOVERED. 6. THE LEARNED COUNSEL FOR ASSESSEE ALSO SUBMITTED THAT AFTER LODGING THE FIR ON 20.7.2006 THE MATTER WAS TAKEN WITH THE CONCERNED CRIMINAL COURT AND THE JUD GMENT WAS PRONOUNCED ON 17.4.2007 BY THE JUDICIAL MAGISTR ATE, 1ST CLASS, PALWAL WHEREBY SHRI SHALESH KUMAR GUPT A, THE EMPLOYEE WAS CONVICTED OF THE OFFENCE UNDER SECTION 420. THE LEARNED COUNSEL FOR ASSESSEE, THEREFORE, SUBMIT TED THAT SINCE THE CRIMINAL CASE IS DECIDED ON 17.4.2007, TH EREFORE, THE DEDUCTION WAS CORRECTLY CLAIMED IN ASSESSMENT Y EAR 2008-09. THIS CONTENTION OF THE LEARNED COUNSEL F OR ASSESSEE IS ALSO NOT RELEVANT BECAUSE ONCE THE LOSS ON ACCOUNT OF EMBEZZLEMENT HAS BEEN DISCOVERED ON 20.7 .2006 BY LODGING FIR AGAINST THE CONCERNED EMPLOYEE AND T HE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE LOSS ON ACCOUNT OF EMBEZZLEMENT WOUL D PERTAIN TO THE PRECEDING ASSESSMENT YEAR 2007-08. IT HAS NO CONNECTION, WHATSOEVER, WITH THE CONVICTION OF T HE 7 EMPLOYEE BY THE CRIMINAL COURT ON LATER DATE. THE LEARNED COUNSEL FOR ASSESSEE IN THE WRITTEN SUBMISSION ALSO REFERRED TO SOME DECISIONS OF OTHER BENCHES OF THE TRIBUNAL ON THE PROPOSITION OF CRYSTALLIZATION OF THE PRIOR PERIOD EXPENDITURE, WHICH HAS NOTHING TO DO WITH THE MATT ER IN ISSUE AND ARE CLEARLY DISTINGUISHABLE ON FACTS. T HE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE DINESH MILLS LTD. (SUPRA) IS DIRECTLY ON THE POINT IN ISSUE. THEREFORE, NO PRECEDENCE CAN BE GIVEN ON THE DECISI ONS OF THE TRIBUNAL WHICH TOO ARE NOT APPLICABLE TO THE FA CTS OF THE CASE. 7. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE. THE SAME IS ACCORDINGLY D ISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF APRIL, 2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 TH APRIL, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH