2023 (2) TMI 153 - AT - Income Tax

Disallowance of business expenditure - disallowance of loss incurred made by the Ld. AO, on account of illegal siphoning of funds by the Finance Director by holding that there was no nexus between the loss incurred vis- -vis the business operations carried on by the Appellant - HELD THAT - We note in this case, the said embezzlement by the Director has been attributed to inflation of the expenditure by the said director over a period of few years. The assessee has clearly said that he has not made any debit of expenditure as embezzlement loss. It was only note in the account explaining loss from which the Revenue authorities have come to the conclusion that the assessee has debited embezzlement loss. Assessee has submitted that the Ld. CIT(A) has erred in stating that the assessee has recovered the embezzlement loss for the current year from the dues of such employees/director. As submitted a sheet of ledger account by reference to which he claimed that a very meagre amount has been collected and hence, the Ld. CIT(A) is wrong in holding that has been recovered. In our considered opinion, on the facts and circumstances of the case, this issue needs to be remitted back to the file of the AO. The AO is directed to factually verify the recovery and allow the balance of loss. As regards of the Ld. CIT(A) direction to the AO to take necessary remedial action for AY 2012-13 to 2013-14, we note that the assessee has submitted two case laws from ITAT , wherein it has been expounded that the Ld. CIT(A) cannot go beyond the assessment year which is under consideration before him. In this regard, the case laws referred are in 2017 (11) TMI 1934 - ITAT KOLKATA and 2019 (6) TMI 351 - ITAT INDORE . No contrary decision was shown to us by the Ld. DR. Hence, following these case laws, we hold that the Ld. CIT(A) has erred in passing the direction to take remedial action to AO for other years. Appeal of the assessee is allowed for statistical purpose.

Summary

Issues Involved:
1. Disallowance of business expenditure.
2. Jurisdiction of CIT(A) to issue directions for past assessment years without notice.
3. Recovery of embezzlement loss and direction for remedial action for past assessment years.

Disallowance of Business Expenditure:
The appeal was against the disallowance of a loss incurred due to illegal siphoning of funds by the Finance Director. The assessee argued that the loss should be allowed as a business expenditure based on legal precedents. The CIT(A) partially allowed the claim, considering the recovery made by withholding dues of the director. The Tribunal noted discrepancies in the details submitted and directed the AO to verify the recovery and allow the balance of the loss. The appeal was allowed for statistical purposes.

Jurisdiction of CIT(A) for Past Assessment Years:
The CIT(A) directed necessary remedial action for past assessment years without notice to the assessee. The Tribunal held that the CIT(A) exceeded his jurisdiction by issuing directions for years not under consideration. Citing relevant case laws, the Tribunal concluded that the CIT(A) erred in passing such directions for other years.

Recovery of Embezzlement Loss and Remedial Action:
The assessee claimed that only a portion of the embezzlement loss was recovered, contrary to the CIT(A)'s finding. The Tribunal found discrepancies in the recovery amount and directed the AO to factually verify the recovery and allow the balance of the loss. Additionally, the Tribunal held that the CIT(A) was wrong in directing remedial action for past assessment years without proper jurisdiction, allowing the appeal for statistical purposes.

This detailed analysis covers the issues of disallowance of business expenditure, jurisdiction of CIT(A) for past assessment years, and the recovery of embezzlement loss, providing a comprehensive overview of the legal judgment.