Accounting entries for loss by theft:

• Cash Theft of ₹10 lakh:
  • Accounting Entry:
    • Debit Loss by Theft: ₹10 lakh
    • Credit Cash: ₹10 lakh
• Jewelry Theft of ₹15 lakh:
  • Accounting Entry:
    • Debit Loss by Theft: ₹15 lakh
    • Credit Jewelry Inventory: ₹15 lakh

Any insurance compensation received should be reported as income and can be set off against the loss claimed.
Treatment for Income tax purpose for ITR:-

• Report these losses in the profit and loss account.
• Deduct these losses under Section 37(1) as business expenses.
• To ensure compliance and accuracy, report the theft losses under Section 37(1) of the Income Tax Act, 1961, as these losses are incidental to the business and not of a capital nature. Proper documentation and records will support the claim for these deductions.
• Any insurance compensation received should be reported as income and can be set off against the loss claimed.

Case Law: Mohan Meakin Ltd. vs. Commissioner of Income Tax (CIT) (2012)
Citation:
Delhi High Court, [2012] 348 ITR 109 (Delhi)
Facts of the Case:

• Mohan Meakin Ltd., a manufacturer of alcoholic beverages, claimed a deduction for losses incurred due to theft and pilferage of stock during transit.
• The Assessing Officer (AO) disallowed the claim, stating that the loss was not incidental to the business and thus not deductible.
• The company appealed the decision, arguing that the losses were incurred during the normal course of business operations and should be allowable as a business expense.

Judgment:

• The Delhi High Court held that the loss incurred due to theft or pilferage during transit is incidental to the business and can be allowed as a deduction.
• The Court emphasized that such losses are part of the operational risks in the business and must be considered while computing business income.
• The Court ruled that the loss was not capital in nature but a revenue loss and hence deductible under Section 37(1) of the Income Tax Act, 1961.

Key Points:

• The loss must be incidental to the business or profession.
• It should not be a capital loss.
• The loss should be incurred in the ordinary course of business operations and directly connected with the business.

Application to Your Case:

1. Cash Theft:
   • Following the principles laid down in the Mohan Meakin Ltd. case, the loss due to cash theft can be considered incidental to the business operations and thus deductible under Section 37(1) of the Income Tax Act, 1961.
2. Jewelry Theft:
   • Similarly, the theft of jewelry inventory, being part of the stock-in-trade, is also incidental to the business and can be claimed as a deductible business expense under Section 37(1).

Practical Steps:

• Accounting Treatment:
  • Record the theft in your financial statements, ensuring it is reflected as a business loss.
• Tax Treatment:
  • Report the loss in your income tax return under business expenses and claim the deduction under Section 37(1).
• Documentation:
  • Maintain thorough documentation such as FIRs, internal records, and any correspondence related to the theft to support your claim.

Conclusion:
The Mohan Meakin Ltd. vs. CIT case provides a clear precedent for claiming deductions for losses incurred due to theft, as long as these losses are incidental to the business and not of a capital nature. By following this legal precedent, you can ensure compliance with Indian income tax laws while claiming the appropriate deductions for your business losses.