R.K.Agrawal, J. - (1.) The Tribunal, Delhi, has referred the following two questions of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as the 'Act'), for opinion of this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the trading loss of embezzlement was not allowable during the previous year ending on 31st Dec, 1977, relevant to the asst. yr. 1978-79 ? 2. Whether, on the facts and in the circumstances of the case, the. Tribunal was justified in law in upholding the disallowance of Rs. 11,474 under Section 80VV ?"
(2.) Briefly stated, the facts giving rise to the present reference are as follows : The present reference relates to the asst. yr. 1978-79. The applicant is a firm deriving income from the running of oil mill, Khandsari business and the running of ice and cold storage plant. It maintains its account on calendar year basis. For its business, it maintains depots at various places including Calcutta, Cuttack and Haldwani. At Haldwani, the depot is utilized both as sales outlet and as purchasing agency. The depot is in the charge of a manager, assistant manager and an accountant. Sometime in October, 1977, the supplies of raw materials from the Haldwani depot became irregular. While trying to find out the reasons for this irregularity of supplies, the assessee-firm came to discover considerable embezzlement at the said depot by the manager, assistant manager and the accountant. Accordingly, an employee was deputed for the detailed examination of the accounts and ascertaining the extent of the embezzlement. The said employee, Shri Har Govind, completed the preliminary investigation and arrived at a rough figure of Rs. 8,50,000 as embezzled amount. In the meanwhile, the manager, the assistant manager and the accountant appeared before the partners of the assessee-firm and confessed having done the embezzlement in question. Accordingly, the assessee-firm lodged an FIR with Civil Lines Police Station, Aligarh, on 31st Dec, 1977, claiming the embezzlement loss to be Rs. 8,50,000. As the aforesaid figure was only tentative, the assessee-firm appointed one S.M. Gupta & Co., chartered accountant, to investigate the full extent of the embezzlement and report the matter to the firm who submitted the report on 7th July, 1979, reporting an embezzlement of Rs. 11,17,014. In the meantime, the assessee-firm filed a civil suit on 20th April, 1979, against the three persons before the Civil Judge, Aligarh. We are not in a position to say anything as to whether the criminal and civil cases have been disposed of or not. On the basis of the aforesaid facts, the applicant claimed embezzlement loss of Rs. 11,17,014 in respect of the asst. yr. 1978-79 on the ground that the embezzlement in question came to the knowledge of the assessee in the accounting period corresponding to the asst. yr. 1978-79 and that there was no prospect of its recovery. The IAC did not accept the above claim of the assessee, inter alia, on the ground that there were discrepancies between the claim of embezzlement made before the AO and that contained in the FIR lodged with the Police, that in the absence of stock register, the extent of the embezzlement loss could not be verified, and that the appellant had not taken necessary steps to realize the amount within the previous year in question.
(3.) The applicant has also incurred a sum of Rs. 20,876 in respect of the previous year corresponding to the asst. yr. 1978-79 for making payment to its income-tax advisers and others for representing their cases before the various IT authorities. Out of the said amount, the AO allowed a sum of Rs. 5,000 and the balance of Rs. 15,876 was disallowed by invoking provisions of Section 80W of the Act.;