COMMISSIONER OF INCOME TAX Vs. DURGA JEWELLERS

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Nagpur Bench, Nagpur, has referred the following two questions to this court for its opinion, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act ").

(2.) THE facts in brief necessary for answering the aforesaid two questions are that the assessee during the relevant assessment year was carrying on business in purchase and sale of precious metal. THE relevant assessment year in this case was 1976-77, the previous year with regard to which was the period between November 14, 1974, and November 3, 1975, the accounts being maintained on the basis of Diwali year. Certain gold was seized from the petitioner for violation of the Gold Control Regulations. In the proceedings for confiscation of the seized gold, a fine in the sum of Rs. 5,000 was imposed on the assessee in lieu of confiscation. THE assessee claimed deduction of this sum of Rs. 5,000. Another item of dispute was with regard to a theft which had taken place in the business premises of the assessee on August 13, 1974. THE first information report was lodged by the assessee on August 14, 1974, indicating the extent of the property which had been stolen. THE police was successful in recovering a major portion of the property stolen which was returned to the assessee. THE second first information report was lodged by the assessee on September 22, 1974, giving details of such of the properties which had yet to be recovered. A final report, however, was made by the police in the matter on November 21, 1974. THE assessee claimed deduction of Rs. 25,000 as value of unrecovered goods which had been stolen. THE Income-tax Officer disallowed both these deductions claimed by the assessee and the order of the Income-tax Officer was upheld in appeal by the Commissioner of Income-tax (Appeals) in this behalf. On second appeal having been filed by the assessee, however, the Tribunal accepted the plea of the assessee with regard to both these items and allowed the deductions as claimed. On an application being made by the Department thereafter, the Tribunal referred the aforesaid two questions to this court for its opinion.

(3.) IN the instant case, it cannot be said that breach of the Regulations under the. Gold (Control) Act, which was an offence, was an essential part of the business of the assessee. IN this view of the matter, question No. (1) referred to us has to be answered in the negative. IN regard to question No. (2), the INcome-tax Officer and the Commissioner of INcome-tax (Appeals) took the view that since the assessment year 1976-77 in the instant case corresponded to the period between November 14, 1974, and November 3, 1975, and since the theft had taken place on August 13, 1974, and the assessee was following the mercantile system of accounting, the loss could be claimed by him not in the assessment year 1976-77 but in the assessment year 1975-76. The Tribunal, on the other hand, relied upon a decision of the Allahabad High Court in U. P. Vanaspati Agency v. CIT [1968] 68 ITR 120 and held that the loss was rightly claimed in the assessment year 1976-77. IN that case, it was held that a dispossession would become a loss only after the recovery becomes impossible or the chances of recovery become very remote. IN that case, a theft of Rs. 13,100 had taken place on January 4, 1960, and only Rs. 1,100 was recovered. The balance of Rs. 12,000 was claimed by the assessee as if the theft had taken place in the year 1961-62. The deduction was disallowed on the ground that the loss had not occurred in the assessment year 1961-62, but in the assessment year 1960-61. The High Court took the view that three months could not be held to be an excessive period to make efforts to recover the money and, consequently, the consciousness of the loss should be attributed to the assessee only after April 1, I960. IN the instant case, the second first information report was lodged by the assessee on September 22, 1974, indicating the extent of the properties which had not yet been recovered. This indicates that the assessee was still hopeful of the recovery being made even of the remaining properties. As seen above, the final report was made by the police on November 21, 1974. Consequently, it cannot be said that the petitioner was unjustified in entertaining the hope that the remaining properties would also be recovered till November 21, 1974, On the final report being made, he finally came to know that there was, at any rate, little chance of recovery. Since November 21, 1974, in the instant case, fell within the assessment year 1976-77, the Tribunal was right in holding that the claim for deduction of Rs. 25,000 was rightly made in the year 1976-77. On this view, the Tribunal cannot be said to have committed any error in allowing this deduction.