JUDGMENT 1. This is an income-tax reference under Section 256 of the Income-tax Act, 1961, at the instance of the Revenue and the following two questions of law have been referred by the Tribunal to this court for answer, which read as under : " (i) Whether, on the facts and circumstances, the loss of Rs. 1,32,558 on account of theft of ornaments pawned with the assessee, a moneylender, as security for the loans, claimed in loss return for the Diwali year 1979 filed on December 2, 1982, revising original return filed belatedly on July 28, 1980, could be considered and allowed. ? (ii) Whether loss of ornaments held as security and not as stock-in-trade in money-lending business be allowed as deduction under Section 28 ?" 2. The assessee is a registered firm and it deals in money-lending business. A theft took place at the house of the assessee in the intervening night of November 2 and 3, 1978, and pawned silver ornaments of the value of Rs. 1,32,559 and cash of Rs. 2,000 were taken away. It is submitted that in order to redeem the ornaments, a sum of Rs. 27,120 was paid. The issue relates to the assessment year 1980-81, at the accounting period ending Diwali, 1979. The Income-tax Officer did not entertain the claim since the revised return of loss was beyond the period prescribed by Section 139(3) of the Income-tax Act. Therefore, he held that the revised return is not valid. He also held that the ornaments were kept by the assessee as security and there was no responsibility on the assessee of returning their ornaments. Therefore, he disallowed the claim of loss of ornaments to the tune of Rs. 1,32,559. He, however, allowed the loss of Rs. 2,000 and so also the deduction of Rs. 27,120. 3. The assessee aggrieved against the order of the Income-tax Officer, preferred an appeal before the Commissioner of Income-tax (Appeals), who endorsed the order of the Income-tax Officer as to disallowance of Rs. 1,32,559 in respect of loss of ornaments. 4. Aggrieved against the order of the Commissioner of Income-tax (Appeals), the assessee then preferred an appeal before the Tribunal and the Tribunal held that the ornaments came into the possession of the assessee in the course of business of pawning, income of which is taxed. 1,32,559 in respect of loss of ornaments. 4. Aggrieved against the order of the Commissioner of Income-tax (Appeals), the assessee then preferred an appeal before the Tribunal and the Tribunal held that the ornaments came into the possession of the assessee in the course of business of pawning, income of which is taxed. The Tribunal further held that the ornaments did not belong to the assessee and, therefore, they could not be said to be the capital of the assessee. The Tribunal, vide order (annexure "C"), allowed the claim of the assessee. Hence, an application was moved before the Tribunal on behalf of the Revenue to refer the matter to this court and for that reason, the Tribunal referred the aforesaid two questions for answer of this court. 5. We have heard learned counsel for both the parties and perused the records. 6. Certain expenditure is allowed under Section 37 of the Act. Section 37 deals with the general provisions of any expenditure not being expenditure of the nature described in Sections 30 to 36. Therefore, it is a residuary clause and it says that the expenditure not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In the present case, the assessee had actually incurred a loss of Rs. 27,120 which he had to pay to his customers, who had pawned the articles in lieu of the loan advanced to them as a security. That expenditure has been allowed by the Income-tax Officer. However, the assessee also claimed the value of total ornaments stolen away, i.e., Rs. 1,32,559. This amount has been disallowed. Therefore, the question is that whether the assessee is entitled to allowance of the value of the stolen property which was a security of other pawnees with him. A similar question came up before the Supreme Court in the case of CIT v. Nainital Bank Ltd. [1965] 55 ITR 707, wherein a dacoity took place in the Nainital Bank Ltd. on June 11, 1951, and the dacoits carried away the cash amounting to Rs. 1,06,000. Therefore, a question arose that whether the trading loss of a business is deductible in computing the income profit earned by the business. 1,06,000. Therefore, a question arose that whether the trading loss of a business is deductible in computing the income profit earned by the business. In that context, their Lordships observed (headnote) : " The loss incurred by dacoity was incidental to the carrying on of the business of banking and was deductible as a trading loss in computing the income of the respondent from banking business." 7. At the same time, their Lordships held that every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. Their Lordships further held that whether the loss is incidental to the operation of a business is a question to be decided on the facts of each case, having regard to the nature of the operations carried on and the nature of the risk involved in carrying them out. The degree of the risk or its frequency is not of much relevance but its nexus to the nature of the business is material. In that context, their Lordships further held that cash is the stock-in-trade of a banking business and its loss in the course of the business under varying circumstances is deductible as a trading loss in computing the total income of the business. Subsequently, in another decision of the Supreme Court in the case of CIT v. Nainital Bank Ltd. [1966] 62 ITR 638, relating to the same bank, a question arose regarding jewellery pledged with the bank by constituents and loss of jewellery by dacoits. The value of the jewellery was adjusted against the amounts due from constituents and difference received or paid by the bank. Therefore, the question was that whether it was a business expenditure. In that context, their Lordships held (headnote) : " The amounts paid by the bank were expenditure laid out for the purpose of its business and allowable as deductions under Section 10(2)(xv) of the Indian Income-tax Act, 1922. The settlements with the constituents and the consequent posting of entries in its books of account could not be regarded as mere forbearance to enforce its claim to recover the loans advanced. The settlement consisted of two constituent elements-paying by the bank of the value of the jewellery pledged with it against the receipt from the constituent of the amount which was recoverable by the bank. The settlement consisted of two constituent elements-paying by the bank of the value of the jewellery pledged with it against the receipt from the constituent of the amount which was recoverable by the bank. The first element of the transaction would appropriately be deemed expenditure and such expenditure having been laid out for protecting and furthering the business of the bank was properly admissible under Section 10(2)(xv)." 8. Therefore, their Lordships have in such a situation, taken the view that the assessee is entitled to the actual loss incurred by them by paying to his constituents for security loss in terms of the ornaments/jewellery. In the present case, the assessee could only satisfy the authorities that he had in fact to pay a sum of Rs. 27,120 for loss of the security of the jewellery ; therefore, that was allowed. But the rest of the amount claimed by the assessee for loss of the ornaments in a sum of Rs. 1,32,559 was declined and in our opinion, rightly, so. 9. In fact, what is allowable is the actual expenditure incurred by the assessee in the business. Since the assessee deals in money-lending business on the basis of security in terms of the ornaments ; therefore, his trading activities involved some security for loan advanced by him. In case, such security is lost from him and he had to compensate the loanee or pawnor, in that case, he is entitled to that much loss of expenditure under Section 37 of the Act. Since the assessee has failed to satisfy both the authorities below that he had incurred a loss of sum of Rs. 1,32,559 towards ornaments, therefore, it has to be disallowed. The Tribunal though referred to the aforesaid two decisions, but only concluded that this is a loss claimed by the assessee, which ought to have been allowed. But they have not adverted to the ratio laid down in both the cases that what is allowed is the actual loss and not the purported loss of the ornaments. Therefore, the view taken by the Tribunal does not appear to be well-founded. Hence, we answer this reference against the assessee and in favour of the Revenue. 10. But they have not adverted to the ratio laid down in both the cases that what is allowed is the actual loss and not the purported loss of the ornaments. Therefore, the view taken by the Tribunal does not appear to be well-founded. Hence, we answer this reference against the assessee and in favour of the Revenue. 10. However, before parting with this case, we may observe that in case the assessee in the subsequent year has paid any amount in lieu of the loss of the security ornaments to the pawnor, then he can claim the benefit of the same in the accounting year 1980-81, if he satisfies the authorities of the actual loss. 11. This reference is disposed of accordingly.