Cama Motors (P.) Ltd. Vs. Inspecting Assistant - Court Judgment

Excerpt:
1. in this appeal the assessee challenges the action of the cit(a) in respect of three grounds of appeal. the first one of which reads as under: that the cit(a) erred in not allowing the sum of rs. 2,87,516 being the amount of provision made in respect of stolen jeeps. it is submitted that your appellant has been following mercantile system of accounting and in view of the facts mentioned in detail in the statement of facts filed before him, the loss on account of the stolen jeeps be held to be allowable in computing the total income and that the assessment be modified accordingly.2. the iac (asst.) in the course of the assessment proceedings observed that the assessee had claimed rs. 2,89,292. the order for the four jeeps (total 16 jeeps) had been placed directly with m/s. mahindra & mahindra ltd. by the executive engineer, ahmedabad, and these jeeps were given to the assessee for being delivered to the executive engineer. it was submitted before the iac (asst.) by the assessee that on or about 1-5-1981, the aforesaid jeeps were stolen and it was suspected that its sales manager, mr. paresh banerji was involved in the theft. a fir was filed with the police and as a result of the investigations made by the police, mr. banerji was arrested and the four jeeps were recovered. it transpired that these jeeps had been registered in the names of different persons and the metropolitan magistrate, ahmedabad, passed orders for returning the jeeps to the persons in whose names they had been registered. an appeal was filed against the order of the metropolitan magistrate in the gujarat high court which not only stayed the order of the metropolitan magistrate, but directed that the jeeps be placed in the custody of the assessee for safe keeping till the final decision by the court.3. after setting out the above facts in the assessment order, the iac (assessment) came to the conclusion that the assessee had a liability of rs. 2,87,128 towards m/s. mahindra & mahindra against which a provision had been made and which had been claimed as a business loss.the iac(a) disallowed the claim on account of the following reasons : (i) "the loss is not yet become mature. the jeeps have been recovered and are in custody of assessee. there is a reasonable chance for assessee to recover back the goods. the mere dispossession is not loss. a dispossession would become a loss after the recovery becomes impossible or the chances of recovery become very remote (u.p. vanaspati agency v. cit [1968] 68 itr 120 (all.). supreme court in associated banking corporation of india ltd. v. cit [1965] 56 itr 1, 13 (sc) has also ruled that "it is wrong to say that irrespective of other consideration, as soon as an embezzlement of the employer's funds takes place, whether the employer is aware or not of the embezzlement, there results a trading loss. so long as there is a reasonable prospect of recovery of the amounts embezzled trading loss in a commercial sense cannot be deemed to have resulted. the same principal was followed in the cases of jokhiram ramachandra v. cit [1966] 61 itr 693, 701 (bom.) ; lord's dairy farm ltd. 27 itr 700 (bom.) ; kothari & sons v. cit [1966] 61 itr 23 (mad.) ; m.p. venkatachalapathy iyer v. cit [1951] 20 itr 363 (mad.). (ii) secondly the matter is sub-judice and it is not yet finally settled whether or not the jeeps were stolen. it is learnt that the accused had taken the stand that the jeeps were sold in regular fashion and the regular sale bills etc. were prepared and that the jeeps were not stolen at all. till the court decides on the issue whether the jeeps were stolen or sold, the claimed loss cannot be allowed. i may clarify that my stand is strictly for a limited purpose of considering the allowability of the provision for i.t. purposes and in no way should be construed a comment upon the merit of the argument of assessee or accused.4. the assessee company challenged the action of the iac(a) and preferred an appeal before the cit(a). it was submitted in the appellate proceedings that the persons in whose names the jeeps had been registered were found to be in possession of sale letters issued by shri h.l. pandya, authorised signatory of the assessee company and claimed that they had actually purchased the jeeps from the company.these letters, it was alleged were challenged as bogus. it was further submitted that the executive engineer was pressing for the delivery of the jeeps and the company had to supply these four jeeps the cost of which amounted to rs. 2,87,516. it was further submitted that the company was following the mercantile system of accounting and the loss was allowable in assessment year 1982-83 being the year of appeal as the theft took place during this period. the learned cit(a) considering the arguments put forward by the assessee and also going through the order of the iac(a) agreed with the iac(a) that the claim had been rightly disallowed. he observed as under in his order : on a careful consideration of the submissions made by the appellant company and the assessment order of the iac (assessment), i incline to agree with the iac (assessment) that the claim of rs. 2,87,128 was rightly disallowed. various legal authorities quoted by the iac (assessment) are supporting the disallowance. it is now established principle of law that the only liability in praesenti can be allowed and not liability de futuro (cit v. lachhman das mathura das [1980] 124 itr 411 (all.) ; indian copper corporation. in the appellant company's case it is not yet certain whether or not it would suffer any loss at all. the jeeps have been recovered and are in the possession of the assessee. in case the court decides in favour of assessee company that the jeeps were stolen, the assessee company would get back the jeeps and there would be no loss to assessee. on the other hand, if the court decides that jeeps were not stolen but were actually sold, then obviously assessee would not be able to get any deduction. any way whether or not assessee company would suffer loss would be decided in future by the courts and only in that year the loss can be claimed and allowed. as on today no loss has been suffered by the assessee as the recovery of stolen jeep has been made, the same are in possession of the assessee and reasonable chances of winning of the case by assessee exist. under the circumstances, the claim was rightly disallowed by the iao (assessment).5. in appeal before us the learned counsel has argued at great length on the facts of the case which are not disputed by either side. he also took us through the lengthy paper-book. he strongly urged that; the claim was allowable as it pertained to the year under appeal, the factum of theft having been detected in this year. he submitted that the claim was made on the basis of the assessee company following the mercantile system of accounting, although the actual expenditure for the purchase of the 4 jeeps was incurred in assessment year 1983-84 for being supplied to the executive engineer. he strongly laid stress on a board circular for the proposition that claim was allowable in the year under appeal. this circular is as follows : 171. losses by embezzlement by employees-treatment for the purposes of income-tax assessment. 1. a reference is invited to the instructions on the above subject contained in board's circular no. 25 of 1939 and circular no. 13 of 1974. in the circulars clarified that losses arising due to embezzlement of employees or due to negligence of employees should be allowed if the loss took place in the normal course of business and the amount involved was necessarily kept for the purpose of business in the place from which it was lost. since the above circulars were issued the supreme court has further considered the matter and laid down the law in this regard in the following two cases : (2) associated banking corporation of india ltd. v. cit [1965] 56 itr 1 (sc). in the first case, the supreme court has affirmed the view that the loss resulting from embezzlement by an employee or agent of a business is admissible as a deduction under section 19(1) of the income-tax act, 1922 (corresponding to section 28 of the income-tax 1961) if it arises out of the carrying on of the business and is incidental to it. in the second case, the decision is, that loss must be deemed to have arisen only when the employer comes to know about it and realises that the amounts embezzled cannot be recovered. 2. in the light of the above decision of the supreme court, the legal position now is that loss by embezzlement by employees should be treated as incidental to a business and this loss should be allowed as deduction in the year in which it is discovered. circular : no. 35-d (xlvii-20) of 1965 [f. no. 10/48/65-ii (ai)] dated 24-11-1965.5.1 he also referred to a decision of the hon'ble patna high court in the case of cit v. parmanand makhan lal [1983] 142 itr 800 to contend that filing of an fir with the police was a sufficient ground for allowing the claim as a business loss.5.2 he finally urged that as far as the assessee company was concerned they only held possession of four jeeps on the orders of the court.they could not use these jeeps and they were lying in their premises being subjected to deterioration day by day. he also made a statement at the bar that these jeeps had not been shown as purchases originally and consequently reflecting them as sales or closing stock did not arise. he also submitted that the court proceedings had not been taken up till date although a long period had elapsed since the theft took place. he also made a statement at the bar that the accused mr. paresh banerjee was absconding and his whereabouts were not known. he also gave an undertaking at the bar that as and when any amount is received by the company on the conclusion of the legal proceedings either in cash or as the sale consideration of the four jeeps lying in their custody they would offer it for taxation purposes.5.3 the learned d.r., on the other hand, strongly relied on the order of the iac(asst.) and cit(a). he contended that the circular relied upon by the assessee did not apply to his case. he also drew our attention to the observation of the learned authors in kanga and palkivala on page 449 for the proposition that contingent liabilities cannot be allowed as a deduction even under the mercantile system of accounting. he also referred to a decision of the hon'ble allahabad high court in the case of cit v. lachhman das mathura das [1980] 124 itr 411 contend that it was only a liability in praesenti that can be claimed under the mercantile system. he further contended that till the final proceedings were disposed of by the court it could not be said that any loss had resulted to the assessee. according to him it was allowable only thereafter.5.4 in the rejoinder, the learned counsel drew support from the decision of the hon'ble punjab and haryana high court in the case of laxmi ginning & oil mills v. cit [1971] 82 itr 958 to contend that a loss can be allowed even during the pendency of the litigation.6. we have heard the rival contentions and also perused the paper-book filed by the assessee. the undisputed facts are that the assessee company during the year under appeal has been subjected to theft of 4 jeeps and the accused is alleged to be its sales manager mr. paresh banerjee. that the fir was filed with the police which resulted not only in the recovery of the four jeeps but the arrest of mr. banerjee.that the four jeeps were found to have been registered in the name of four outsiders on the basis of letters purported to have been issued by the authorised signatory of the company. that the matter went to court and the hon'ble high court directed the custody of the jeeps to be placed with the company with a direction not to put them on road or use them. it was also held that the vehicles shall remain idle pending the trial and the same would have to be produced as and when directed by the court. that the position remains the same, as of today, as it was when the vehicles were restored to the assessee by the order of the hon'ble high court dated 19-7-1982.6.1 it is also observed from the order of the hon'ble high court that the magistrate was to dispose of the case before 31-12-1982 and also submit a report about the progress of the case by 31-10-1982. as mentioned earlier, no progress has been made in the proceedings whatsoever. we would like to draw attention to the fact that the four jeeps lying with the company under orders of the court are not the property of the company. they are not reflected in the closing stock of the company and are undergoing to continuous deterioration being subjected to the elements day in and day out. as against this a sum of rs. 2,78,516 has gone out of the coffers of the company for purchase of four jeeps which have been handed over to the executive engineer. it is not known as of today what the company would recover as a result of the conclusion of the legal proceedings and. when. as we have been informed mr. paresh banerjee alleged accused is absconding. the record does not state anything as to whether any money was recovered from him when his arrest was effected. in case the company recovers anything by the sale of the four jeeps the amount may not be much because of the considerable erosion in their value after a lapse of time. it is not known what action may be contemplated by the persons in whose names these jeeps were found to be registered subsequent to the theft.6.2 under these circumstances, we feel that the claim of the assessee merits allowance not only on the basis of the system of accounting being followed by him but also the facts surrounding the claim. we are supported in our decision by the judgment of the hon'ble punjab and haryana high court in the case of laxmi ginning & oil mills (supra), where their lordships observed as follows : the loss was suffered by the assessee-firm in the accounting year relevant to the assessment year 1953-54, and if, as a result of litigation it was found entitled to less amount than the amount claimed, the difference could be included in the assessable income of the assessee for the year during which the final decision of the litigation was made. similarly, if the assessee had been successful in obtaining the entire amount of loss from the amrit banaspati company ltd. the amount could be included in the income of the assessee for the year during which the amount was actually recovered. the pendency of the litigation about the loss suffered cannot militate against the fact that the loss was suffered by the assessee-firm during the accounting year in question. the amount of that loss cannot be postponed in view of the pendency of the litigation referred to above.6.3 we would also refer to the decision of the hon'ble bombay high court in the case of jethabhai hirji and jethabhai ramdas v. cit [1979] 120 itr 792 wherein it has been observed as under : nor would the fact that an assessee, subsequent to the write off of a debt, continued legal proceedings against, the debtor necessarily lead to the conclusion that the write off was improper or lacked bona fides.6.4 we would also refer to the decision of the hon'ble gujarat high court in the case of sarangpur cotton mfg. co. ltd. v. cit [1983] 143 itr 166, wherein the decision of the hon'ble bombay high court cited supra was considered. we would also like to point out that the binding decision of the bombay high court in the case of lord's dairy farm ltd. v. cit [1955] 27 itr 700 was also considered by the hon'ble gujarat high court. the following-observation of their lordships at page 708 has been referred to : when a businessman writes off an amount, there is prima facie evidence that that amount is irrecoverable. undoubtedly, the department can rebut the prima facie inference by drawing .. attention to circumstances or by lending some evidence to suggest that the position taken up by the assessee was not correct. in this case there is no evidence whatsoever on the record except the fact that the assessee wrote off this amount in the year of account. in the absence of any evidence we are entitled to presume that the amount became irrecoverable when the assessee wrote it off in its books of account.6.5 we respectfully following the ratio laid down by the aforesaid decisions, accept the first ground in the appeal and direct that the claim of rs. 2,86,516 be allowed. we have also kept in mind the various other case laws cited by both sides in coming to the conclusion that we have.7. ground nos. 2 and 3 in the assessee's appeal challenges the levy of interest under section 139(8) and 217(1a).8. we find from the order of the cit(a) that he has held that interest under both provisions is chargeable. he has, however, left the option to the company to move an application for waiver of interest under the rules. before us, it has been contended that the levy of interest is consequential to the disallowance of loss amounting to rs. 2,87,516 in respect of stolen jeeps. the learned d.r., on the other hand, relies totally on the order of the cit(a) as regards charging of penal interest. we after hearing the rival contentions do accordingly hold that consequential relief be allowed to the assessee as a result of the decision that we have taken in respect of ground no. 1 pertaining to the loss in respect of stolen jeeps.

Judgment:
1. In this appeal the assessee challenges the action of the CIT(A) in respect of three grounds of appeal. The first one of which reads as under: That the CIT(A) erred in not allowing the sum of Rs. 2,87,516 being the amount of provision made in respect of stolen jeeps.

It is submitted that your appellant has been following mercantile system of accounting and in view of the facts mentioned in detail in the statement of facts filed before him, the loss on account of the stolen jeeps be held to be allowable in computing the total income and that the assessment be modified accordingly.

2. The IAC (Asst.) in the course of the assessment proceedings observed that the assessee had claimed Rs. 2,89,292. The order for the four jeeps (total 16 jeeps) had been placed directly with M/s. Mahindra & Mahindra Ltd. by the Executive Engineer, Ahmedabad, and these jeeps were given to the assessee for being delivered to the Executive Engineer. It was submitted before the IAC (Asst.) by the assessee that on or about 1-5-1981, the aforesaid jeeps were stolen and it was suspected that its Sales Manager, Mr. Paresh Banerji was involved in the theft. A FIR was filed with the police and as a result of the investigations made by the police, Mr. Banerji was arrested and the four jeeps were recovered. It transpired that these jeeps had been registered in the names of different persons and the Metropolitan Magistrate, Ahmedabad, passed orders for returning the jeeps to the persons in whose names they had been registered. An appeal was filed against the order of the Metropolitan Magistrate in the Gujarat High Court which not only stayed the order of the Metropolitan Magistrate, but directed that the jeeps be placed in the custody of the assessee for safe keeping till the final decision by the Court.

3. After setting out the above facts in the assessment order, the IAC (Assessment) came to the conclusion that the assessee had a liability of Rs. 2,87,128 towards M/s. Mahindra & Mahindra against which a provision had been made and which had been claimed as a business loss.

The IAC(A) disallowed the claim on account of the following reasons : (i) "The loss is not yet become mature. The jeeps have been recovered and are in custody of assessee. There is a reasonable chance for assessee to recover back the goods. The mere dispossession is not loss. A dispossession would become a loss after the recovery becomes impossible or the chances of recovery become very remote (U.P. Vanaspati Agency v. CIT [1968] 68 ITR 120 (All.).

Supreme Court in Associated Banking Corporation of India Ltd. v. CIT [1965] 56 ITR 1, 13 (SC) has also ruled that "it is wrong to say that irrespective of other consideration, as soon as an embezzlement of the employer's funds takes place, whether the employer is aware or not of the embezzlement, there results a trading loss. So long as there is a reasonable prospect of recovery of the amounts embezzled trading loss in a commercial sense cannot be deemed to have resulted. The same principal was followed in the cases of Jokhiram Ramachandra v. CIT [1966] 61 ITR 693, 701 (Bom.) ; Lord's Dairy Farm Ltd. 27 ITR 700 (Bom.) ; Kothari & Sons v. CIT [1966] 61 ITR 23 (Mad.) ; M.P. Venkatachalapathy Iyer v. CIT [1951] 20 ITR 363 (Mad.).

(ii) Secondly the matter is sub-judice and it is not yet finally settled whether or not the jeeps were stolen. It is learnt that the accused had taken the stand that the jeeps were sold in regular fashion and the regular sale bills etc. were prepared and that the jeeps were not stolen at all. Till the court decides on the issue whether the jeeps were stolen or sold, the claimed loss cannot be allowed. I may clarify that my stand is strictly for a limited purpose of considering the allowability of the provision for I.T. purposes and in no way should be construed a comment upon the merit of the argument of assessee or accused.

4. The assessee company challenged the action of the IAC(A) and preferred an appeal before the CIT(A). It was submitted in the appellate proceedings that the persons in whose names the jeeps had been registered were found to be in possession of sale letters issued by Shri H.L. Pandya, authorised signatory of the assessee company and claimed that they had actually purchased the jeeps from the company.

These letters, it was alleged were challenged as bogus. It was further submitted that the Executive Engineer was pressing for the delivery of the jeeps and the company had to supply these four jeeps the cost of which amounted to Rs. 2,87,516. It was further submitted that the company was following the mercantile system of accounting and the loss was allowable in assessment year 1982-83 being the year of appeal as the theft took place during this period. The learned CIT(A) considering the arguments put forward by the assessee and also going through the order of the IAC(A) agreed with the IAC(A) that the claim had been rightly disallowed. He observed as under in his order : On a careful consideration of the submissions made by the appellant company and the assessment order of the IAC (Assessment), I incline to agree with the IAC (Assessment) that the claim of Rs. 2,87,128 was rightly disallowed. Various legal authorities quoted by the IAC (Assessment) are supporting the disallowance. It is now established principle of law that the only liability in praesenti can be allowed and not liability de futuro (CIT v. Lachhman Das Mathura Das [1980] 124 ITR 411 (All.) ; Indian Copper Corporation. In the appellant company's case it is not yet certain whether or not it would suffer any loss at all. The jeeps have been recovered and are in the possession of the assessee. In case the Court decides in favour of assessee company that the jeeps were stolen, the assessee company would get back the jeeps and there would be no loss to assessee. On the other hand, if the court decides that jeeps were not stolen but were actually sold, then obviously assessee would not be able to get any deduction. Any way whether or not assessee company would suffer loss would be decided in future by the Courts and only in that year the loss can be claimed and allowed. As on today no loss has been suffered by the assessee as the recovery of stolen jeep has been made, the same are in possession of the assessee and reasonable chances of winning of the case by assessee exist. Under the circumstances, the claim was rightly disallowed by the IAO (Assessment).

5. In appeal before us the learned counsel has argued at great length on the facts of the case which are not disputed by either side. He also took us through the lengthy paper-book. He strongly urged that; the claim was allowable as it pertained to the year under appeal, the factum of theft having been detected in this year. He submitted that the claim was made on the basis of the assessee company following the mercantile system of Accounting, although the actual expenditure for the purchase of the 4 jeeps was incurred in assessment year 1983-84 for being supplied to the Executive Engineer. He strongly laid stress on a Board Circular for the proposition that claim was allowable in the year under appeal. This circular is as follows : 171. Losses by Embezzlement by employees-Treatment for the purposes of Income-tax assessment.

1. A reference is invited to the instructions on the above subject contained in Board's Circular No. 25 of 1939 and circular No. 13 of 1974. In the circulars clarified that losses arising due to embezzlement of employees or due to negligence of employees should be allowed if the loss took place in the normal course of business and the amount involved was necessarily kept for the purpose of business in the place from which it was lost. Since the above Circulars were issued the Supreme Court has further considered the matter and laid down the law in this regard in the following two cases : (2) Associated Banking Corporation of India Ltd. v. CIT [1965] 56 ITR 1 (SC).

In the first case, the Supreme Court has affirmed the view that the loss resulting from embezzlement by an employee or agent of a business is admissible as a deduction under Section 19(1) of the Income-tax Act, 1922 (Corresponding to Section 28 of the Income-tax 1961) if it arises out of the carrying on of the business and is incidental to it. In the second case, the decision is, that loss must be deemed to have arisen only when the employer comes to know about it and realises that the amounts embezzled cannot be recovered.

2. In the light of the above decision of the Supreme Court, the legal position now is that loss by embezzlement by employees should be treated as incidental to a business and this loss should be allowed as deduction in the year in which it is discovered.

Circular : No. 35-D (XLVII-20) of 1965 [F. No. 10/48/65-II (AI)] dated 24-11-1965.

5.1 He also referred to a decision of the Hon'ble Patna High Court in the case of CIT v. Parmanand Makhan Lal [1983] 142 ITR 800 to contend that filing of an FIR with the police was a sufficient ground for allowing the claim as a business loss.

5.2 He finally urged that as far as the assessee company was concerned they only held possession of four jeeps on the orders of the Court.

They could not use these jeeps and they were lying in their premises being subjected to deterioration day by day. He also made a statement at the Bar that these jeeps had not been shown as purchases originally and consequently reflecting them as sales or closing stock did not arise. He also submitted that the court proceedings had not been taken up till date although a long period had elapsed since the theft took place. He also made a statement at the Bar that the accused Mr. Paresh Banerjee was absconding and his whereabouts were not known. He also gave an undertaking at the Bar that as and when any amount is received by the company on the conclusion of the legal proceedings either in cash or as the sale consideration of the four jeeps lying in their custody they would offer it for taxation purposes.

5.3 The learned D.R., on the other hand, strongly relied on the order of the IAC(Asst.) and CIT(A). He contended that the circular relied upon by the assessee did not apply to his case. He also drew our attention to the observation of the learned authors in Kanga and Palkivala on page 449 for the proposition that contingent liabilities cannot be allowed as a deduction even under the mercantile system of accounting. He also referred to a decision of the Hon'ble Allahabad High Court in the case of CIT v. Lachhman Das Mathura Das [1980] 124 ITR 411 contend that it was only a liability in praesenti that can be claimed under the mercantile system. He further contended that till the final proceedings were disposed of by the court it could not be said that any loss had resulted to the assessee. According to him it was allowable only thereafter.

5.4 In the rejoinder, the learned counsel drew support from the decision of the Hon'ble Punjab and Haryana High Court in the case of Laxmi Ginning & Oil Mills v. CIT [1971] 82 ITR 958 to contend that a loss can be allowed even during the pendency of the litigation.

6. We have heard the rival contentions and also perused the paper-book filed by the assessee. The undisputed facts are that the assessee company during the year under appeal has been subjected to theft of 4 jeeps and the accused is alleged to be its Sales Manager Mr. Paresh Banerjee. That the FIR was filed with the police which resulted not only in the recovery of the four jeeps but the arrest of Mr. Banerjee.

That the four jeeps were found to have been registered in the name of four outsiders on the basis of letters purported to have been issued by the authorised signatory of the company. That the matter went to court and the Hon'ble High Court directed the custody of the jeeps to be placed with the company with a direction not to put them on road or use them. It was also held that the vehicles shall remain idle pending the trial and the same would have to be produced as and when directed by the Court. That the position remains the same, as of today, as it was when the vehicles were restored to the assessee by the order of the Hon'ble High Court dated 19-7-1982.

6.1 It is also observed from the order of the Hon'ble High Court that the Magistrate was to dispose of the case before 31-12-1982 and also submit a report about the progress of the case by 31-10-1982. As mentioned earlier, no progress has been made in the proceedings whatsoever. We would like to draw attention to the fact that the four jeeps lying with the company under orders of the Court are not the property of the company. They are not reflected in the closing stock of the company and are undergoing to continuous deterioration being subjected to the elements day in and day out. As against this a sum of Rs. 2,78,516 has gone out of the coffers of the company for purchase of four jeeps which have been handed over to the Executive Engineer. It is not known as of today what the company would recover as a result of the conclusion of the legal proceedings and. when. As we have been informed Mr. Paresh Banerjee alleged accused is absconding. The record does not state anything as to whether any money was recovered from him when his arrest was effected. In case the company recovers anything by the sale of the four jeeps the amount may not be much because of the considerable erosion in their value after a lapse of time. It is not known what action may be contemplated by the persons in whose names these jeeps were found to be registered subsequent to the theft.

6.2 Under these circumstances, we feel that the claim of the assessee merits allowance not only on the basis of the system of accounting being followed by him but also the facts surrounding the claim. We are supported in our decision by the judgment of the Hon'ble Punjab and Haryana High Court in the case of Laxmi Ginning & Oil Mills (supra), where their Lordships observed as follows : The loss was suffered by the assessee-firm in the accounting year relevant to the assessment year 1953-54, and if, as a result of litigation it was found entitled to less amount than the amount claimed, the difference could be included in the assessable income of the assessee for the year during which the final decision of the litigation was made. Similarly, if the assessee had been successful in obtaining the entire amount of loss from the Amrit Banaspati Company Ltd. the amount could be included in the income of the assessee for the year during which the amount was actually recovered. The pendency of the litigation about the loss suffered cannot militate against the fact that the loss was suffered by the assessee-firm during the accounting year in question. The amount of that loss cannot be postponed in view of the pendency of the litigation referred to above.

6.3 We would also refer to the decision of the Hon'ble Bombay High Court in the case of Jethabhai Hirji and Jethabhai Ramdas v. CIT [1979] 120 ITR 792 wherein it has been observed as under : Nor would the fact that an assessee, subsequent to the write off of a debt, continued legal proceedings against, the debtor necessarily lead to the conclusion that the write off was improper or lacked bona fides.

6.4 We would also refer to the decision of the Hon'ble Gujarat High Court in the case of Sarangpur Cotton Mfg. Co. Ltd. v. CIT [1983] 143 ITR 166, wherein the decision of the Hon'ble Bombay High Court cited supra was considered. We would also like to point out that the binding decision of the Bombay High Court in the case of Lord's Dairy Farm Ltd. v. CIT [1955] 27 ITR 700 was also considered by the Hon'ble Gujarat High Court. The following-observation of their Lordships at page 708 has been referred to : When a businessman writes off an amount, there is prima facie evidence that that amount is irrecoverable. Undoubtedly, the Department can rebut the prima facie inference by drawing ..

attention to circumstances or by lending some evidence to suggest that the position taken up by the assessee was not correct. In this case there is no evidence whatsoever on the record except the fact that the assessee wrote off this amount in the year of account. In the absence of any evidence we are entitled to presume that the amount became irrecoverable when the assessee wrote it off in its books of account.

6.5 We respectfully following the ratio laid down by the aforesaid decisions, accept the first ground in the appeal and direct that the claim of Rs. 2,86,516 be allowed. We have also kept in mind the various other case laws cited by both sides in coming to the conclusion that we have.

7. Ground Nos. 2 and 3 in the assessee's appeal challenges the levy of interest under Section 139(8) and 217(1A).

8. We find from the order of the CIT(A) that he has held that interest under both provisions is chargeable. He has, however, left the option to the company to move an application for waiver of interest under the rules. Before us, it has been contended that the levy of interest is consequential to the disallowance of loss amounting to Rs. 2,87,516 in respect of stolen jeeps. The learned D.R., on the other hand, relies totally on the order of the CIT(A) as regards charging of penal interest. We after hearing the rival contentions do accordingly hold that consequential relief be allowed to the assessee as a result of the decision that we have taken in respect of ground No. 1 pertaining to the loss in respect of stolen jeeps.