ITAT allowed loss suffered by gold/ornament robbery carried forward from previous year
In a recent judgment, ITAT Rajkot allowed loss suffered by gold ornaments robbery which was carried forward as opening stock from preceding year in hope of recovery by police.
ABCAUS Case Law Citation:
4185 (2024) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) NFAC in in restricting claim of loss due to robbery of gold jewellery / ornaments.
The appellant assessee was a jeweller and derived income from business during the year under consideration. The assessee, filed return of income, declaring a loss. Later on, the assessee sou-moto filed the revised return of income again declaring a loss.
The case of the assessee, was selected for complete scrutiny through CASS. In compliance to notice u/s 142(1) cum- questionnaire, the assessee, appeared and filed written submissions and documents before the assessing officer.
On perusal of details filed by the assessee, the Assessing Officer (AO) observed that assessee had shown Opening stock of Gold robbery which had been shown, as consumed in the form of loss. Therefore, a show cause notice was issued to the assessee to explain and justify the reasons and status of the loss occurred on account of robbery and how the same was allowable in the year under consideration. The AO also noted that the loss was pertaining to previous year, therefore, it should not be allowed, hence the assessing officer issued further notice to the assessee to explain the allowability of the loss.
The assesee explained that the robbery was happened during the preceding Assessment Year. The robbery was reported to Police. The assessee was hopeful of the recovery of the robbed gold through police department. Subsequently robbers were caught by Police Department but could not recover anything from them. And therefore, on finalization of event the assessee written off the same in the books of account.
However, the assessing officer rejected the explanation of the assessee and disallowed the loss claimed.
The CIT(A) partly allowed the loss observing that although the robbery took place in the immediately preceding Assessment Year, assessee was definitely hopeful of recovery of stolen ornaments.
The Tribunal observed that during the preceding Assessment year, robbers and conspirator, had been caught and they admitted the crime. The police also recovered some jewellery and seized it. Since partial robbed material had been recovered, it was hoped by the assessee that they would get balance amount in future. Thus, robbed gold/jewellery remain un-quantified at the end of the preceding financial year and also till the due date of filing of return of income for the preceding assessment year.
The Tribunal further observed that despite investigation was under process by Police, there was no desired progress, as far as recovery of the robbed gold/jewellery from these persons. After prolonged investigation, the Police Inspector had sought permission from Judicial Magistrate to add section 120 of IPC in assessee`s case. Under these circumstances, the assessee understood that there was very little possibility to recover the robbed gold/jewellery in near future; hence the robbed stock was debited to the trading account. However, if any robbed gold/jewellery are found in future or get possession of seized gold ornaments from the police department / court, the assessee would be liable to offer to tax in the year of possession.
The Tribunal held that in view of the circumstances of the case, the assessee was entitled to claim the loss on account of robbery/theft. The loss due to embezzlement, theft, dacoity, etc, is allowable deduction, if it can be proved to have arisen, out of the carrying on of the business and the same must be incidental to it. What is material is it should be caused in the course of his business activity and closely connected with business. If that is so, it (loss) will be an allowable deduction in computing the “profits”. It is also undisputed that one should make possible efforts to recover the loss occurred due to theft/ embezzlement, etc.
The Tribunal stated that it has been held by the Hon`ble Allahabad High Court that a dispossessing would become loss only after the recovery becomes of impossible or the chances of recovery become very remote. The Hon`ble Supreme Court had held that it is open to the assessee to claim the loss if it has a proximate connection with its business.
Hence, the Tribunal opined that it is settled law that the loss arising by embezzlement/robbery of money by a stranger to the business is also a trading loss and the loss is liable to be allowed as deduction provided the loss is incidental to the normal operation of the business. The Tribunal rejected the arguments of the revenue to the effect that no quantitative details in the FIR was mentioned and the assessee does not have any cogent documents and evidences to claim loss, particularly considering the above facts, that assessee had submitted police reports related to the robbery and FIR and apart from this assessee submitted newspaper clippings also.
Accordingly, the Tribunal allowed the loss suffered by gold/ornament robbery and allowed the appeal.
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