ACIT Vs National Peroxide Limited (ITAT Mumbai)
In the order u/s143(3), AO disallowed the deduction on account of embezzlement of funds amounting to Rs.18.96 crores & the expenditure related to exempt income u/s14A read with Rule 8D. Additionally, the return of income filed by Assessee was processed u/s143(1)(a). While computing the income, additions were made on account of disallowance of exempt income claimed u/s115-P amounting to Rs.17,06,252/- & disallowance u/s43B amounting to Rs.1,73,77,069/-.
Both issues relating to the additions u/s 115-O & 43B were contested by Assessee before CIT(A) in the appeal preferred against 143(3) order. CIT(A), allowed Assessee’s appeal
Before the Tribunal, Dept argued that the addition made in Intimation u/s143(1) was erroneously considered by CIT(A) while passing the appellate order against 143(3) proceedings. Therefore, clubbing of grounds arising from two distinct proceedings ought not to be permitted. With respect to the addition on account of embezzlement of funds & disallowance made u/s14A read with Rule 8D, Revenue stood in support of the view taken by AO.
Assessee argued that while computing its taxable income it had claimed deduction amount to Rs.18,96,12,109, being part of the total loss of Rs.37,02,98,000/- on account of embezzlement of funds which was unearthed during impugned assessment year. The entire loss on account of embezzlement of funds was to the extent of Rs.37,02,98,000 & is pertaining to the period of 9-10 years. Assessee filed additional evidence before CIT(A) & CIT(A) called for the remand report on the basis of the documents submitted by Assesse in the appellate proceeding. During the assessment proceedings, Covid period was going on, so assessee was not able to submit the documents properly before AO. Assessee relied on circular 35D (XLVII of 1965) (AI)dated 24.11.1965 which provides that profits that loss arising on account of embezzlement by employees should be treated as incidental to a business & this loss should be allowed as a deduction in the year in which the same is discovered.
