Embezzlement of cash by the cashier

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Irfan Hassan (Querist)
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09 September 2013 Dear Sir/Madam, is embezzlement of cash by the cashier allowed as a deduction under the provision of the Income Tax Act 1962?

CA Pallav Singhania

CA Pallav Singhania (Expert)
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09 September 2013 Embezzlemnt by employees or strangers -
(a) The Bombay High Court in the case of G.G. Dandekar Machine Works Ltd. v. CIT [1993] 202 ITR 161 held that for determining whether any loss from theft, dacoity, embezzlement, etc., is deductible or not, what is material is whether the loss incurred by the theft, dacoity, etc., is incidental to the carrying on a business.

It does not make any difference whether such Act is committed by the employees of the assessee or by strangers.

(b) The loss incurred due to defalcation by an employee is an allowable loss.

In arriving at the conclusion the High Court of Kerala in the case of Commonwealth Trust (India) Ltd. v. CIT [2000] 242 ITR 593 held that the competency of the employee to disburse the amount has no consequence if the loss had been sustained during the course of business of the assessee.

In that case the defalcation was done by a person who was not authorised to deal with disbursement of the amount but as the loss sustained was incidental to business the same was allowed irrespective of the fact whether the employee was competent to deal with cash or not.

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