The Chandigarh bench of the Income Tax Appellate Tribunal (ITAT) held that the loss incurred by embezzlement is an admissible deduction.
The Assessee, Gurudwara Godri Sahib Baba Farid Society is a registered under the Societies Registration Act, 1860 and is also registered under Section 12AA of the Income Tax Act, 1961. The main object of the society is to spread and propagate the religious and spiritual teachings of Sant Baba Farid. The society runs a college, school and also manages a Gurudwara.
The Assessment Representative argued that the assessee disagrees with the decision of the First Appellate Authority to uphold the inclusion of Rs. 49,09,290/- as a result of employee embezzlement within the finances of the assessee-society. This amount was originally added by the Assessing Officer (AO).
The affairs of the assessee’s were society are mainly looked after by the President of Society, namely, Shri Inderjeet Singh Sekhon, who at present is of 94 years of age but at the time of the embezzlement, he was of 87 years of age.
While he was actively involved in overseeing the operations of the society, two employees of the organization engaged in fraudulent activities by tampering with certain expenditure bills. They manipulated the payable amounts to different vendors by increasing them, and subsequently obtained the President of the Society’s signature on the checks associated with these manipulated bills. As a result, they successfully embezzled funds during the financial years of 2014-15 and 2015-16.
It was further submitted that this embezzlement was discovered only at a later stage when the two employees left their employment with the assessee society and went on to settle abroad and new staff was appointed.
The Authorized Representative of the assessee specifically referred to the judgment of the Supreme Court in the cases of Badridas Daga Vs. CIT (1958) 34 ITR 10 (SC) and Nainital Bank Ltd. Vs. CIT (1965) 55 ITR 707 (SC) on this issue.
While presenting the case for the Departmental Appeal, the Commissioner of Income Tax (CIT) submitted that despite the Department raising three grounds of appeal, the primary issue in question is that the Commissioner of Income Tax (Appeals) (CIT(A)) made an error by removing the inclusion of Rs. 2 Crores, which was initially added by the Assessing Officer. This addition was based on the fact that the mentioned amount remained unused even after a period of five years since its accumulation.
In reference to the order of the Chandigarh Bench of Income Tax Appellate Tribunal (ITAT) in the case of Rogi Kalyan Samiti vs. ACIT.
The two-bench member comprising of Sudhanshu Srivastava (Judicial member) and Vikram Singh Yadav (Accountant member) affirmed the order of the Commissioner of Income Tax (Appeals) and dismissed the ground by the Department.
Therefore, the appeal of the assessee stands partly allowed and the appeal of the Department stands dismissed.
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