ITAT Remands Theft Loss Claim for Verification of Recovery Made by Pharmaceutical Company:

The assessee is Kapoor Agencies Pvt. Ltd. which was engaged in business as a clearing and forwarding agent and marketing agent of Macleods Pharma Ltd., earning commission, handling charges and storage charges for its services. During the course of stock verification at its godown, the assessee discovered that certain pharmaceutical goods were missing. Consequently, an FIR dated 03/04/2014 was lodged against certain employees responsible for handling the receipt and delivery of goods.

In its return and financial statements, the assessee claimed Rs. 66,95,982 as loss on account of theft. During the assessment proceedings, the AO called upon the assessee to furnish supporting documents and justification for the claim. Considering the genuineness of the theft loss unverified, the AO disallowed the entire claim of Rs. 66,95,982 and initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. The CIT(A) upheld the disallowance. 

Before the Tribunal, the assessee submitted that the theft had resulted in an actual financial loss and that the amount was recoverable by Macleods Pharma Ltd. from the assessee under an agreement dated 17/05/2014. It was further submitted that, under the agreement, Macleods Pharma Ltd. had adjusted Rs. 28 lakh from the security deposit furnished by the assessee and was also entitled to deduct Rs. 3.50 lakh per month from the commission payable to it until the outstanding amount relating to the missing pharmaceutical products was recovered.

The Tribunal noted that, although the criminal proceedings were subsequently settled and the FIR was quashed by the Allahabad High Court by order dated 12/08/2015, Macleods Pharma Ltd. had already entered into an agreement with the assessee on 17.05.2014 concerning the missing pharmaceutical goods and recovery of Rs. 66,95,852 from the assessee.

On examination of the ledger accounts placed in the paper book, the Tribunal found that Macleods Pharma Ltd. had been adjusting amounts from the security deposit and the commission payable to the assessee during the relevant assessment year. Accordingly, the Tribunal observed that the assessee appeared to have actually incurred a loss on account of missing goods for which it was required to compensate Macleods Pharma Ltd. The AO was directed to determine the amount of deductible expenditure on this account after carrying out the necessary verification.