Section 37 of Income Tax Act, 1961— This appeal is filed by assessee against the order passed by ITAT. The assessee has a showroom in Delhi. It entered into a franchisee agreement to sell “Allen Solly” brand of products at its showroom. Under clauses 21 and 22 of the Franchisee Agreement, it was the Assessee which was accountable to the company in case of loss of goods.
a sum of Rs. 2 lakhs on account of stock shortage was debited and recovered from the assessee. The company accordingly issued a certificate to that effect. Before the Assessing Officer (AO), despite the Assessee producing the said certificate, the claim of Rs. 2 lakhs on account of shortage of stock was disallowed on the ground that the Assessee had failed to furnish details of either the nature of or period of shortage.

Held that—The Assessee's appeal was dismissed by the CIT observing that the company had wrongly recovered the loss from the Assessee. The CIT (A) observed that the Assessee should have raised a dispute with the company instead of claiming it as a deduction.

the ITAT nevertheless upheld the disallowance on the ground that the Assessee had failed to substantiate such loss by furnishing details of the shortage.

Held that—The Court fails to appreciate how the Assessee could have done anything more to substantiate the fact that it had to pay Rs. 2 lakhs to the company towards the shortage of stock. The fact of the Assessee having actually paid the company the said amount is also not in dispute. Being in the business of running a showroom for wearing apparels, shortage of stock is not an unusual phenomenon.

this Court answers the question of law framed in the affirmative i.e. in favour of the Assessee and against the Revenue.[M/S. P.H. KUMAR & CO. VERSUS INCOME TAX OFFICER] [2019] 16 ITCD Online (14) [DELHI HIGH COURT]