KHAITAN AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The facts found and/or admitted in these proceedings are, inter alia, as follows : Khaitan & Co., a firm of solicitors, are the assessee. The assessment year involved is 1969-70 and the corresponding previous year is the one ended on the 31st October, 1968. At the material time the assessee had a current account in the National & Grindlays Bank Ltd., Church Lane, Calcutta. From the weekly statement for the period from the 26th December to the 29th December, 1967, sent by the said bank it was noticed by the assessee that a sum of Rs. 30,000 had been wrongly debited. On an enquiry it was found that the amount had been drawn against a cheque made payable self or bearer. On investigation it was found further that an unknown person had forged the signature of Shri P.K. Khaitan, one of the partners of the assessee, and had withdrawn the money from the bank.

(2.) By its letter dated the 8th January, 1968, the assessee called upon the bank to credit the said sum back to the account and advised the bank to report the matter to the police. This was done and also the services of handwriting experts were requisitioned. It was ultimately found that the signature on the forged cheque was not that of the authorised person whose signature appeared in the specimen card of the bank. It was also established that the cheque was forged by none of the persons working in the cash department of the assessee and none of them were party to the forgery. The assessee thereafter again requested the bank to credit the said sum to its account which the bank refused to do. The bank, however, continued to contend that it had no liability in the matter and that there was no negligence on the part of the bank's employees. Thereupon, the assessee filed a suit in this court against the bank claiming, inter alia, a decree for Rs. 30,000 and other incidental reliefs. This suit is still pending in this court.

(3.) In the assessment proceeding for the said assessment year the ITO disallowed the deduction of Rs. 30,000 claimed by the assessee as a loss, as the suit filed by the assessee was then pending. Being aggrieved, the assessee preferred an appeal and contended before the AAC that the maintenance of the said bank account was essential for conducting the business of the assessee and that the said account was maintained for collecting cheques from; clients and making disbursements on the latter's behalf. It was contended further on the basis of a statement filed that large sums of money were from time to time drawn from the said account by bearer cheques for making payments on behalf of the assessee's clients and also for disbursements of the assessee's expenditure. It was contended that money lost from the bank was a loss incidental to the assessee's business.