Loss due to embezzlement by employees allowable as deduction u/s 28

DDIT Vs Standard Chartered Bank (ITAT Mumbai)

ITAT Mumbai held that that loss arising due to embezzlement by the employees should be treated as incidental to the business such loss so suffered is allowable as deduction under section 28 of the Income Tax Act.

Facts- The Assessee is a foreign corporate body being a bank incorporated by the Royal Charter under the laws of England and Wales and registered in India under the Companies Act, 1956. The Assessee was engaged in the business of banking financial services and allied activities in India and filed return of income for A.Y. 1993-94 on 29/12/1993 declaring loss of INR 1,645.85 Crores. Assessment was framed on the Assessee vide Assessment order dated 20/09/1996, passed u/s. 143(3) of the Act at net loss of INR 448.74 Crores after making various additions and disallowances.

CIT(A) partly allowed the relief to the assessee. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Held that the local conveyance expenses and other actual expenses which are incurred by the employee while on tour for conducting the assessee’s business cannot be considered as travelling expenses of the employee under Rule 6D of the Rules. Further, the disallowance was made on ad-hoc basis. Thus, we do not find any infirmity in the order passed by the CIT(A) deleting the ad-hoc disallowance of INR 10,00,000/- by invoking the provisions of Rule 6D of the Rules.

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