Loss from Embezzlement

Hi Lunawat,

Yes, you can claim the loss of Rs 10 lacs u/s 37(1) in the current year when it's been determined that the amount is not recoverable. This seems tantamount to embezzlement, although you haven't given full details. Did your client lodge an FIR with the police when the money went missing? Although there are sufficient judicial rulings as well as a CBDT circular allowing such losses to be claimed u/s 37(1), the onus of proving that he had made all possible efforts, including lodge an FIR, to get his money back would squarely lie on your client alone. Here are a couple of case laws for you:In CIT v. Smt. Pukhraj Wati Bubber [2007] 199 Taxation 107 (Punj. & Har.) the court allowed the loss on account of defalcation of Rs 264795 saying that embezzlement was incidental to carrying on the business and there was direct and proximate connection and nexus between the loss and the business. The loss could be allowed u/s 37(1).In Badridas Daga v. CIT [1958] 34 ITR 10 (SC), an agent of the assessee withdrew amount from bank and misappropriated it. The Supreme Court held that having regard to accepted commercial practice and trading principles, it could be said that loss arose out of carrying on of business and was incidental to it.The CBDT circular I talked about is Circular No. 35-D(XLVII-20) (F. No. 10/48/65-IT (A-I), dated November 24, 1965)]. The CBDT says that loss by embezzlement by employee is admissible in the year in which the assessee comes to know of it and realizes that it isn't recoverable any more. I am assuming of course that although your client's business has closed down, the current year's income you intend to set off this loss against is business income from a different source. Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "lunawat123" wrote:>> one of the emploeees of my client sent 10 lakhs for purchase of goods> with his employee about one & half years back. the employee went> missing. Now he is found murdered. we has shown this amount as due> from him in the return of income filed. as this amount is now> irrecoverable, can we write off this against the income of current> year. the businees was closed during last year itself