THANGIRALA IMMANUEL,PALACOLE vs. THE INCOME TAX OFFICER, WARD-1, , PALACOLE

आदेश /O R D E R

Per D.S. Sunder Singh, Accountant Member :

These appeals are filed by the assessees against the orders of the

Commissioner of Income Tax (Appeals) [CIT(A)], Rajamahendravaram

dated 26.09.2018 and 15.10.2018. Since the facts of the case are identical,

these appeals are clubbed, heard together and a common order is being

passed for the sake of convenience.

Corporation of India. They have filed the returns of income declaring total

income as under :

Returned Sl.No. Name A.Y. Income (Rs.) 2008-09 4,74,240 (i) Thangirala Immanuel 2011-12 6,97,120 (ii) AvadhanulaSrinivasaRao 2011-12 9,88,360 (iii) Nuthalapati Ravi Shankar 2011-12 12,41,650

The Assessing Officer (AO) found that the assessees have claimed the

exemption u/s 10(14) of the Income Tax Act,1961 (in short ‘Act’) in

respect of the following allowances :

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Allowance for Fixed Conveyance Procuring Conveyance Name A.Y. Expenditure New Allowance Business (Rs.) (Rs.) (Rs.) 2008-09 41,400 30,804 - Thangirala Immanuel 2011-12 45,500 33,964 33,964 Avadhanula 2011-12 45,500 66,097 66,097 SrinivasaRao Nuthalapati Ravi 2011-12 45,500 86,582 86,582 Shankar

2.1. The AO further observed that the above amounts were paid by LIC as

salary or profits in lieu of salary and the LIC of India had also deducted the

TDS on the amounts as they are taxable. Since the above amounts are

taxable, the AO reopened the assessments u/s 147 by issue of notice u/s

148 of the Act and taken up the cases for reassessment. During the

reassessment proceedings the assessees have filed the reply stating that

the exemption was claimed u/s 10(14), since, the amounts were wholly and

exclusively spent on tour and travelling for mobilizing the business and

are exempt under rule 2BB(1)(c) of the I.T.Rules. The AO considered the

explanation of the assessee and not being satisfied with the explanation,

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held that the assessee did not satisfy the following conditions required to

be satisfied for allowing exemption u/s 10(14) (i) The amount in question is in nature of a special allowance or benefit (ii) The special allowance or benefit is not in the nature of perquisite within the meaning of section 17(2)] (iii) Such amount is specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit (iv) Such amount should be specified and notified in the official gazette by the Central Government.

2.2. According to the AO, all the above conditions required to be satisfied

cumulatively, to be entitled for exemption u/s 10(14) of the Act and also

there must be a notification issued by the Central Government. In the

absence of notification and the assessee not being satisfied with the

conditions discussed above, the assessee is held to be not entitled for

exemption u/s 10(14) of the Act. Accordingly, made the addition to the

returned income and assessed the total income of the assessees as under :

Total Name A.Y. Income (Rs.) 2008-09 5,46,140 Thangirala Immanuel 2011-12 8,10,550 AvadhanulaSrinivasaRao 2011-12 11,66,050 Nuthalapati Ravi 2011-12 14,60.310 Shankar

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the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee holding

that exemption u/s 10(14) r.w.Rule 2BB is not applicable. In the instant

case as it is observed from the foot note of Rule 2BB that additional

conveyance allowance and incentive bonus paid to LIC officers are not

covered u/s Rule 2BB of Income tax Rules. Accordingly, the Ld.CIT(A)

confirmed the addition made by the AO and dismissed the appeal of the

assessee.

before this Tribunal. During the appeal hearing, the Ld.AR argued that the

above allowances are fixed allowances and paid by the employer after

being satisfied that the amounts were spent wholly for the purpose of

carrying out the duties. The assessee also submitted in his explanation that

the allowances were received for the purpose of tours and the amounts

spent on tour and travelling was more than the allowances received and

argued that since the entire amounts were paid wholly and exclusively on

tour travelling, the same may be allowed as deduction. The Ld.AR further

argued that the AO had reopened the assessment taking support from the

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order of the Hon’ble jurisdictional High Court in the case of Ramayya &

Others (214 ITR 368) and the issue involved in the decision of Hon’ble High

Court of Andhra Pradesh was incentive bonus, but not the allowances

which are incurred for the purpose of carrying out the duties. Therefore,

argued that the case law relied upon by the Ld.CIT(A) or AO is not

applicable in the assessee’s case and the assessee’s case is squarely covered

for exemption u/s 10(14) r.w.Rule 2BB of I.T.Rules. The assessee also

relied on the decision of K.Pullarao Vs. ITO in ITA No.1647/Hyd/1995

dated 31.01.2002, wherein the Tribunal has followed the decision of the

Hon’ble Jurisdictional High Court in Appeal No.117/1992 and requested to

follow the same.

authorities.

record. On identical facts in the case of Avadhanula Srinivasa Rao, the ITAT

allowed the appeal of the assessee following the order of Shri K.Pulla Rao

(supra) for the A.Y.2009-10 in ITA no.243/Viz/2017 dated 09.11.2018.

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Hon’ble Jurisdictional High Court in the case law referred in appeal

No.117/1992 observed that

"We approve the reasoning of the Tribunal. In our view where amounts are paid to the employees by an employer to meet expenses wholly, necessarily and exclusively for the performance of the duties, such amounts can be exempted to the extent it is shown that it has been incurred for the purpose for which it was granted. In the case of employees of the State or Corporations, whether statutory or otherwise, where the employer after having surveyed the actual expenditure necessary for performance of the duty, grants actual allowance generally to all the employees, it is to be presumed that the entire expenditure has been incurred for the purpose for which it has been granted, for if it not incurred for which is has been given, it would entail disciplinary action against the employee. Unless such a case has been initiated against an employee by an employer, the said presumption that the employee has incurred the expenditure for which it is granted, will apply and it will not be necessary for the employees to submit accounts every month to the employer and along with return to the assessing authority. If, in such matters, filing of the accounts and vouchers/receipts are insisted upon to claim exemption under section 10(14) of the Act by the Income-tax authorities, it will lead to voidable waste of time and expenditure and would serve no useful purpose but on the contrary it would be counter-productive. The coordinate bench of the tribunal in the case of B. Chinnaiah& Others (supra) has considered the ratio laid down by the Hon'ble Jurisdictional High Court and allowed the deduction claimed by the assessee. In this view of the matter, we hold that the additional conveyance allowance is exempt under section 10(14) of the Act."

The coordinate bench of the Tribunal in the case of K.Pullarao has

considered the ratio laid down by the decision of Hon’ble jurisdictional

High Court and allowed the exemption claimed by the assessee and held as

under :

"in the case of employees of the State or Corporations, whether statutory or otherwise, where the employer after having surveyed the actual

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expenditure necessary for performance of the duty, grants actual allowance generally to all the employees, it is to be presumed that the entire expenditure has been incurred for the purpose for which it has been granted, for if it not incurred for which is has been given, it would entail disciplinary action against the employee. Unless such a case has been initiated against an employee by an employer, the said presumption that the employee has incurred the expenditure for which it is granted, will apply and it will not be necessary for the employees to submit accounts every month to the employer and along with return to the assessing authority. If, in such matters, filing of the accounts and vouchers/receipts are by the Income-tax authorities, it will lead to voidable waste of time and expenditure and would serve no useful purpose but on the contrary it would be counter-productive". The coordinate bench of the tribunal in the case of K. Pullarao (supra) has considered the ratio laid down by the decision of the Hon'ble Jurisdictional High Court and allowed the deduction claimed by the assessee. For the sake of convenience, the relevant portion of the order of the Hon'ble Jurisdictional High Court, which is extracted by the ITAT, as under:-

"We approve the reasoning of the Tribunal. In our view where amounts are paid to the employees by an employer to meet expenses wholly, necessarily and exclusively for the performance of the duties, such amounts can be exempted to the extent it is shown that it has been incurred for the purpose for which it was granted. In the case of employees of the State or Corporations, whether statutory or otherwise, where the employer after having surveyed the actual expenditure necessary for performance of the duty, grants actual allowance generally to all the employees, it is to be presumed that the entire expenditure has been incurred for the purpose for which it has been granted, for if it not incurred for which is has been given, it would entail disciplinary action against the employee. Unless such a case has been initiated against an employee by an employer, the said presumption that the employee has incurred the expenditure for which it is granted, will apply and it will not be necessary for the employees to submit accounts every month to the employer and along with return to the assessing authority. If, in such matters, filing of the accounts and vouchers/receipts are insisted upon to claim exemption under section 10(14) of the Act by the Income-tax authorities, it will lead to voidable waste of time and expenditure and would serve no useful purpose but on the contrary it would be counter-productive. The coordinate bench of the tribunal in the case of B. Chinnaiah& Others (supra) has considered the ratio laid down by the Hon'ble Jurisdictional High Court and allowed the deduction claimed by the assessee. In this view of the

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matter, we hold that the additional conveyance allowance is exempt under section 10(14) of the Act." 7. During the appeal hearing the Ld.DR did not bring any other case law to controvert the decisions cited supra. Since the facts are identical, following the ratio laid down by the decision of Hon’ble jurisdictional High Court and the order of this tribunal in the case of A Srinivasa Rao, we are of the opinion that the exemption claimed by the assessee needs favourable consideration. As discussed earlier, the case law relied upon by the AO in Ramayya & Others is related to incentive bonus and is not applicable to the facts of the present case. Accordingly, the orders passed by the Ld.CIT(A) are set aside and the appeals filed by the assessees are allowed.

Order pronounced in the open court on 29th May 2019. Sd/- sd/- (िी.दुगाा राि) (डड.एस. सुन्दर ससंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याययक सदस्य/JUDICIAL MEMBER ऱेखा सदस्य/ACCOUNTANT MEMBER ववशधखधपटणम /Visakhapatnam दििधंक /Dated : 29 .05.2019 L.Rama, SPS

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आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. रधजस्व/ The Revenue –Income Tax Officer, Ward-2(2), Palakol 2. निर्धाररती/ The Assessees-(i) Thangirala Immanuel (ii) Avadhanula Srinivasa Rao (iii) Nuthalapati Ravi Shankar, Development Officers , LIC of India, 1st Lane, Brodipeta, Palakol 3. The Pr.Commissioner of Income Tax, Rajamahendravaram 4. The Commissioner of Income-Tax (Appeals), Rajamahendravaram 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्डफ़ाईि / Guard file

आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam