While dismissing a departmental appeal, a division bench of the Mumbai ITAT ruled that the embezzlement loss due to siphoning of funds of assessee-Company by the employees is a business loss allowable under Section 28 of the Income Tax Act, 1961.
Assessee, in the present case, claimed that there was an embezzlement by the senior employees of the company including the CFO of the company due to which the Company had a loss of Rs. 15,32,573/- . While filing income tax returns for the relevant year, the assessee claimed that the same must be deducted from its business income as the same constitute business loss under section 28 of the Income Tax Act, 1961.
On first appeal, the CIT(A) allowed the claim by following a catena of judicial decisions.
Upholding the order of the first appellate authority, the bench held that the embezzlement loss due to siphoning of funds of assessee company by the employees is a business loss allowable u/s. 28 of the Act.
“The fact that there is embezzlement in the assessee company is not in dispute. The fact that the employees have siphoned off the funds of the assessee company and the assessee has filed criminal complaints against the employees for the frauds committed by them is also not in dispute. Thus, the order passed by the Ld.CIT(A) is a well-reasoned order based on the reliance of various High Courts including the Jurisdictional High Court and the Supreme Court,” the bench said.
Read the full text of the Order below.
