Loss Due to Robbery of Stock-In-Trade of Prior Year Allowable in Subsequent Year if Recovery Seems Unlikely | ITAT

Case Details: Shri Meenawala Castings vs. DCIT - [2024] 165 taxmann.com 303 (Rajkot - Trib.)

Judiciary and Counsel Details

• Dr. Arjun Lal Saini, Accountant Member & Dinesh Mohan Sinha, Judicial Member
• Mehul Ranpura, AR for the Appellant.
• Ahish Kumar Pandey, Sr. DR for the Respondent.

Facts of the Case

Assessee, a partnership firm, was engaged in the business of gold ornaments. The assessee filed a return of income for the relevant assessment year and declared the loss due to robbery of gold ornaments in the return of income.

During the assessment proceedings, the Assessing Officer (AO) contended that the robbery occurred in the preceding year, and the assessee could not furnish any evidence to prove the robbery. Thus, the loss due to robbery was not allowed to be carried forward to the relevant assessment year.

On appeal, the CIT(A) upheld the additions made by the AO. Aggrieved by the order, the assessee filed the instant appeal before the Rajkot Tribunal.

ITAT Held

The Tribunal held that the assessee furnished the copy of the FIR and newspaper cuttings. It was noted that the Gold stock robbery occurred while the partner brought the stock from home on the way to the shop. The assessee immediately filed an FIR on the same day at the registered number. The Police Department also started the investigation immediately. The assessee was hopeful that the remaining gold would be recovered.

The assessee had the gold seized by the police department. The assessee also submitted the summons issued by the police department to the witness in the case. It was understood that there was little possibility of recovering the remaining gold. Thus, the remaining stock was debited to the trading account.

The loss due to the robbery was not debited to the trading account in the year ended 31.03.2014, as at the initial stage, the robbers were apprehended, and there was hope for recovery. Subsequently, the assessee lost hope and debited the loss in the profit and loss account for the year ended 31.03.2015.

The loss due to embezzlement, theft, dacoity, etc., is an 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. The assessee made possible efforts to recover the lost gold. 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 a deduction, provided the loss is incidental to the normal operation of the business.

Thus, the assessee is entitled to claim the loss for robbery.

List of Cases Referred to

• U.P. Vanaspati Agency v. CIT [1968] 68 ITR 120 (Allahabad) (para 11),
• Ramchandar Shivnarayan v. CIT [1978] 111 ITR 263 (SC) (para 11)
• CIT v. Durga Jewellers [1988] 37 Taxman 261/172 ITR 134 (Madhya Pradesh) (para 12).