- (1.) HEARD Sri A. N. Mahajan, for the assessee, and Sri S. Srivastava, for the Revenue.
(2.) FOR the opinion of this court the following questions of law have been referred : " 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the loss of Rs. 1,72,279 was a loss by embezzlement by an employee and as such was a business loss ? 2. Whether, on the facts and in the circumstances of the. case, the Appellate Tribunal was justified in holding that the loss of Rs. 1,72,279 was completely irrecoverable during the previous year relevant to the assessment year 1968-69 ? Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the loss of Rs. 1,72,279 was a business loss allowable in the assessment year 1968-69 ?" 3. The assessee is a registered firm and the reference relates to the assessment year 1968-69. Amongst the claims made by the assessee before the Income-tax Officer in the proceedings for the assessment year 1968-69, the claim of deduction of bad debts amounting to Rs. 1,72,279 was made on account of embezzlement said to have been committed by one Sri Ganesh Narain Somani, who was appointed by the assessee-firm to look after the iron and steel business. The Income-tax Officer found that the claim of loss was not proved as for such a huge amount the assessee did not file any criminal complaint after lodging the first information report and that Sri Somani was not an employee of the assessee, rather was a partner of the assessee-firm as the iron and steel business was in the nature of a joint venture under the agreement dated February 26, 1963, arrived at between the assessee and Sri Somani because, under the agreement, Sri Somani was entitled to 40 per cent. of the share of profits and thus the loss, if any, was capital loss and not a business loss. On this reasoning, the Income-tax Officer did not accept the assessee's claim for deduction.
(3.) THE Appellate Assistant Commissioner dismissed the appeal filed by the assessee. THE Appellate Tribunal, however, held that Sri Somani was not a partner but was merely an employee of the assessee and in lieu of fixed salary he was entitled to 40 per cent. profits in the iron and steel business, and even though the assessee-firm did not pursue the matter further by filing a criminal complaint, the amount embezzled by Sri Somani was irrecoverable and accordingly the Tribunal allowed the assessee's claim of deduction. Before endeavouring to answer the aforesaid questions referred to this court, it has to be seen whether the claim of loss was proved by the assessee. No doubt the assessee lodged the first information report in Collectorganj Police Station on December 11, 1965, but it appears that after lodging the first information report the assessee did not pursue and care to find out the fate of the same. Thereafter, the assessee neither filed a protest petition if a final report was filed nor any complaint under Section 200 of the Criminal Procedure Code for taking appropriate action against Sri Somani although the huge amount of Rs. 1,72,279 was involved. No civil proceedings have been initiated to recover the huge amount said to have been embezzled by Sri Somani. The finding reached by the Income-tax Officer is that the claim of loss was not proved. The finding is affirmed in appeal by the Appellate Assistant Commissioner.;