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Income Tax Appellate Tribunal, RAJKOT BENCH RAJKOT
Before: SHRI PRAMOD KUMAR, ACCOUNTATN MEMBER & SHRI RAJPAL YADAV
आदेश/O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER:
The present three appeals are directed at the instance of assessee against the order of Ld. CIT(A) dated 21.10.2015, 20.10.2015 & 22.03.2017 passed for A.Y. 2010-11, 2011-12 & 2012-13 respectively.
ITA No.13/Rjt/2016, 14/Rjt/2016 & 182/Rjt/2017 A.Y. 2010-11, 2011-12 & 2012-13
Since common issued are involved, therefore, we heard these appeals together and deemed it appropriate to disposed of them by this common order.
Ground No. 1 in A.Y. 2010-11 is common with ground No. 1 in A.Y. 2012-13. In these grounds of appeal grievance of the assessee is that Ld. CIT(A) has erred in upholding the reopening of assessment.
Ld. counsel for the assessee did not press these grounds hence they are rejected.
Ground No. 2 sub ground-A in A.Y. 2010-11 is common with sub ground A of ground No. 1 in A.Y. 2011-12.
The grievance of the assessee in these grounds are that Ld. CIT(A) has erred in confirming the disallowance of 20% of the convenience expenses. The Ld. counsel for the assessee did not press these grounds of appeal hence they are rejected.
In the next fold of grievance, assessee pleaded that Ld. CIT(A) has erred in confirming the disallowance of Rs. 1,56,000/-, 2,07,381/- and 45,330/- out of allowance procuring the business in A.Y. 2010-11, 2011-12 & 2012-13 respectively. Before adverting to the specific grievances let us take note of the brief facts of case. The facts on vital points are common, therefore, for the facility of reference, we take facts from A.Y. 2010-11. The assessee at the relevant time was working as a development officer with the LIC of India. He has filed his return of income for A.Y. 2010-11 on 24.03.2011 declaring total income of Rs. 14,35,240/-. This return was processed u/s. 143(1) thereafter Ld. Assessing Officer has recorded reasons and reopened the assessment.
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The Assessing Officer had issued notice u/s. 143(2) along with notices u/s. 142(1) with detail questionnaire. The basic area of dispute between the assessee and the Assessing Officer in A.Y. 2010-11 pertains to claim of following allowances:-
Head under which deduction is claimed Amount (Rs.) Fixed Conveyance allowance 42,000/- Allowance for procuring business 1,56,000/- Addl. Conveyance allowance 1,56,000/- Total 3,54,000/-
With regard to fixed convenience allowance and additional convenience allowance. Ld. Assessing Officer has observed that assessee is a salaried employee, allowability of claim of deduction is required to be determined on the basis of section 10(14) of the Income tax Act. This section contemplates that certain allowances would be exempted which are specifically granted to meet expenses which are wholly, necessary and exclusive incurred in the performance of duty of an officer to the extent to which such expenses are actually incurred for the purpose. The Ld. Assessing Officer further observed that certain specific allowances for the purpose of clause 14 of section 10 are being prescribed under Rule 2BB of the Income tax Rules 1962. In order to claim these allowances, an assessee has to fulfill three conditions namely, (a) the allowance should be prescribed under Rule 2BB of the Income tax Rules, (b) expenses should be incurred wholly, necessarily and exclusively in the performance of duties (C) allowances should be exempt to the extent to which such expenses are actually incurred for that purpose i.e. expenses incurred should be supported by temporary evidence. The Ld. Assessing Officer thereafter made an detailed
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examination and observed that in A.Y. 2010-11 assessee has claimed fix convenience allowance of Rs. 42,000/- and additional convenience allowance at Rs. 1,56,000/-. He fail to submit complete bill and vouchers including log book. Therefore Ld. Assessing Officer disallowed 20% of Rs. 1,98,000/- and he allowed Rs. 1,58,400/- as deduction. The assessee has challenged this 20% disallowance before the Ld. CIT(A) as well as before us in sub ground A of ground No. 1 in all these years but Ld. counsel for the assessee did not press this ground. Hence the disallowance made by the A.O in this respect is confirmed.
The second fold of grievance is disallowance of expenditure alleged to be incurred for procuring business. The case of the assessee is that LIC has formulated scheme whereby certain development officers were considered as eligible to as a Senior Business Associate the Senior Business Associate were required to maintain the office at their premises and LIC would reimbursed the expenditure. The scheme has been reproduced by the assessee in the statements of facts filed before us. It has been taken note by the Ld. CIT(A) while taking cognizance of the assesee’s written submission. The scheme submitted in A.Y. 2010- 11 in the statements of facts read as under:- Similarly During the accounting period there was senior business associates schemes as under.
Eligibility Criteria:
A Development Officer will be considered eligible to apply as Senior Business Associate if he/she (i) Has completed 5 years service. (ii) Has worked at a cost ratio of 3% or less in the last completed appraisal year. The cost ratio should be reckoned and rounded off to the nearest first decimal place; for example, if the cost ratio works to 3.04%, it should be taken as 3% and if it works to 3.05%, it should be taken as 3.1%. (iii) Is having his/her own office and
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(iv) Is willing to work as a senior Business Associate.
Functions: Besides performing his/her basic duties and obligations as a Development Office, such selected Senior Business Associates shall be authorized to carry out market oriented/customers oriented functions through online portal from his/her Office. Initially, the Senior Business Associate shall be authorized to:
1.Collect Renewal Premiums from all policyholders. 2.Collect Proposal Deposits transaction from agents under his/her organization. 3.Register Proposal of agents working under his/her organization. 4.Submit Proposal of agents working under his/her organization through Electronic Media (E Proposal).
The following add on functions will be allowed to a Senior Business Associates.
1.Issue of Policy Status Reports. 2.Issue of Revival /Loan/Surrender value quotations. 3.Issue of forms. 4.Issue of Certificates to the policyholders for income tax purpose. 5.ULIP Statements.
Benefits and Allowance:
For the purpose of allowing benefits and allowances, such Senior Business Associates would be divided into 3 categories as shown below.
Category Place of Posting
I Cities of Mumbai, Kolkata, Chennai, Delhi & Noida, Faridabad, Ghaziabad, Gurgaon and Navi Mumbai.
II Cities with Population exceeding 12 lakhs, except those mentioned in (I) above, any City in the State of Goa and Gandhi nagar.
III Other Places.
The population figures for the above purpose shall be as per the latest Census Report. Further, the Cities shall also include their Urban Agglomeration. The
ITA No.13/Rjt/2016, 14/Rjt/2016 & 182/Rjt/2017 A.Y. 2010-11, 2011-12 & 2012-13
Classification of Cities for the purpose of payment of benefits shall be as shown below. Category-I Category-II Category-III
Kolkata- including Agra, Ahmedabad, All Other Municipal areas comprising Bangalore, Bhopal. Places. city of kolkata (including Coimbatore (Including Behala, Alipur, Cossipur, Sulur), Gandhinagar, Goa Tollygunge), Howrah, (entire state),Hyderabad, Barrackpore (including Indore, Jaipur, Kanpur, North Barrackpore), Garden Koichi, Lucknow, Ludhiana, Reach Barranagore South Madurai ( including Suburban Muncipal Area Tirunagar), Nagpur, Patna, Dum Dum (including south Pune (including Pimpri & Dum Dum), Kamarhatti, Chinchwad). Surat, Panihati, Knarda, Titahgarh, Vadodara, Varanasi, Garulia, Bhatpara, Naihati, Vishakhapatnam (including Bally, Uttarpara, Konnagar, Gajuwaka). Rishra, Corampere, Baldyaball, Champdam, Bhadreshwar, Chadannagar, Hoogly, Chinsura, Budge Budge, Habra, Baruipur, Barasat and Uluberia.
Chennai
Mumbai -including areas comparising within the limits of mumbai Muncipal Corporation (Greater Mumbai), Dombivlli, Kalyan, Thane, Bhawandi, Uthasnagar Bassein Muncipalities and Navi Mumbai
New Delhi-Faridabad, Ghaziabad, gurgaon, Noida.
The following benefits will be provided to such Senior Business Associates for marketing and customers related services:
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One time interest free advance for making alternations in the office infrastructure, renovation, purchase of furniture etc. As shown below:
Particulars Category-I Category-II Category-III
Maximum 1,50,000 1,25,000 1,00,000 amount of Advance (Rs.)
Repayment 4 Years ( 48 4 Years ( 48 4 Years ( 48 Term installments) installments) installments) 1st- 2565 2nd- to 48th- lst-2240 2nd-to Installment per 3125 48th-2080 month (Rs.) 2605
They will be reimbursed an amount as shown below, per month towards office maintenance subject to certain minimum number of renewal premium transactions, proposal Deposits transaction, Registration of proposal and submission of E Proposals.
Particulars Category-I Category-II Category-Ill
Maximum amount of 25,000 20,000 15,000 Reimbursement allowed per month (Rs.)
The amount as shown above will be reimbursed subject to certain minimum transaction in a month, which would be as shown below: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Particulars (April to June) (July to (October to ( January September) December) to March)
Renewal 200 p.m. 250 p.m. 350p.m. 400 p.m. Premium
Proposal 40 p.m. 60 p.m. 70 p.m. 70 p.m. Deposits
Submission/ 30 p.m. 60 p.m. 60 p.m. 60 p.m. Registration of E Proposal
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The Senior Business Associate who fulfills the above benchmark shall be allowed reimbursement towards Office maintenance along with reimbursement towards various transactions for that month. In case he does not fulfill the benchmark. He shall be only allowed reimbursement towards various transactions. However at the end of the quarter the Sr. Divisional Manger in-charge shall review the total transactions made and in case the Senior Business Associates has fulfilled the quarterly target based on the monthly target of the concerned months. He/she shall be paid the reimbursement towards Office maintenance including the month/s for which he could not achieve the benchmark. It may be noted that the deficit for a particular quarter shall not be carried forward to the next quarter.
Additional reimbursement:
The additional reimbursement allowed to such Senior Business Associates for collection of renewal premium/proposal deposits, submission and registration of E proposal shall be as shown below:
I) A transaction fee of Rs. 5/- per policy for Collection of renewal premium proposal deposits.
The transaction fee in case of proposal deposits will be paid when the BOC is adjusted to NB Premium.
II) A transaction fee of Rs. 107- per policy for collection of Proposal Deposits, Submission and registration of E-proposal.
No additional reimbursement will allowed to a Senior Business Associate for performing the add-on functions. In the event of a Development Officer joining as a Senior Business Associate in the middle of the month, the reimbursement towards Office maintenance shall be allowed from the first of the following month. However, he/she shall be allowed reimbursement towards various transactions.
The Senior Business Associate has to continue to maintain the cost ratio at 3% in the subsequent appraisal years. However, Zonal Manger in-charge can waive the cost ratio up to 1% in that appraisal year in which the cost ratio has exceeded by 3%. Such concession will be allowed on 2 occasion after which no reimbursement shall be allowed towards Office maintenance. However the Senior Business Associate will be allowed additional reimbursement for renewal premium/proposal deposit transaction/submission and registration of E proposal. The reimbursement
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towards Office maintenance shall continue once the Senior Business Associate maintains the cost ratio at 3% or below.
Thus, these receipts were reimbursement of expenses incurred for on behalf of L1C for function which were normally performed by LIC.
On the strength of above scheme it was contended that an assessee has received incentive bonus of Rs. 15,55,000/- and 10% of such bonus ought to be considered as reimbursement of the expenditure incurred by the assessee for procuring the business in the capacity of a Senior Business Associate. The Assessing Officer observed that the additional incentive bonus received by the assessee would be treated as a salary income and assessee cannot claim any deduction against salary income. Further assessee has treated as SBA allowance Rs. 45,000/- and development allowance of Rs. 26,550/- as a business income. Ld. Assessing Officer did not accept this stand of the assessee. He treated these allowances as salary income and did not grant expenditure on the alleged maintenance office etc. He made addition of Rs. 1,56,000/-.
With the assistance of Ld. Representative we have gone through the record very carefully. We find that on page No. 10 and 11 of the paper book, assessee has placed on record certificate from the LIC which contains break up salary received by him. The incentive bonus of Rs. 15,65,000/- is being treated as a part of salary but it has been provided that 10% of incentive bonus would be further allowed to the assessee to meet the various expenses for procuring the business. Thus in total assessee got 15,65,000/- + 1,56,000/-. This amount of Rs. 1,56,000/- allowed to the D.O for procuring the business was marked as expenditure, this is 10% of the total incentive bonus. It is according to the scheme of the insurance company which designated certain
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development officer on fulfillment of the condition of the Senior Business Associate. It is to be construed as reimbursement of the expenditure quantified by the employer itself. Therefore this amount is to be allowed to the assessee. We allow special grant B in assessment year 2010-11 and delete the disallowance of Rs. 1,56,000/-.
In rest of the two years assessee has not filed copy of the break up as filed in A.Y. 2010-11 i.e copy of the certificate available on page No. 10 to 11 of A.Y. 2010-11 has not been placed on record in A.Y. 2011-12. As observed earlier, perusal of page 11 of the paper book in A.Y. 2010-11 would indicate that assessee received incentive bonus of Rs. 15,65,000/-. He has been further granted allowance of Rs. 1,56,000/-. It is 10% of incentive bonus which has been paid in accordance with scheme. This break up has not been filed in rest of the two years. Therefore we remitted this issue to the file of the Assessing Officer in other two years with a direction that Ld. Assessing Officer shall verify the amount of allowances given to the assessee in the capacity of Senior Business Associate for earning incentive bonus. In other words, the additional allowance for procuring business has to be allowed to the assessee considering as reimbursement of actual expenditure. Ground No B & C in A.Y. 2011-12 & 2012-13 are set aside to the Assessing Officer for re adjudication.
Sub ground No. C of ground 1 in A.Y. 2010-11 the assessee has pleaded that Ld. CIT(A) has erred in confirming disallowance of Rs. 45,000/- out of SBA allowance and development allowance of Rs. 26,550/-. The assessee treated these amounts as business income and claimed corresponding deduction in the shape of depreciation etc. The Ld. Revenue Authorities have rightly treated them as a salary income because assessee was a salaried employee certain expenses could be
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allowed to him on reimbursement basis if incurred on behalf of the employer for procuring the business but he cannot be treated as doing any business. Therefore grounds of appeal are rejected.
The next common ground in all these appeals in all the three years relates to determination of annual letting value of the house property. The Assessing Officer has determined annual letting value of the house property at Rs. 48,000 and 60000 in A.Y. 2010-11 to 2012- 13 respectively.
Ld. counsel for the assessee at the outset contended that this issue was considered by the ITAT in A.Y. 2008-09 and Tribunal has set aside to the issue to the file of Assessing Officer with a direction to take the ALV of the property equivalent to the vale determined by municipal corporation for the purpose of municipal taxes. The order of the Tribunal in ITA No. 12/Rjt/2016 has been placed on the record. The Ld. D.R was unable to controvert this contention of the Ld. counsel for the assessee.
On due consideration of the facts and circumstances we find that identical issue for the same property was considered by the ITAT in A.Y. 2008-09 and Tribunal has recorded following findings:-
Assessee has filed return of income on 18.08,2008 and had claimed exemption in respect of one self occupied property and had shown the income from other property at Rs. (-) 6454/- Other property was self occupied property. During the course of assessment proceedings, Assessing Officer in his order observed as under:
On verification of the statement of income the assessee claimed deduction on account of interest on capital amounting to Rs.1,46,066/- u/s 24B, while computing the income from house property. From perusal of the record, it is seen that the
ITA No.13/Rjt/2016, 14/Rjt/2016 & 182/Rjt/2017 A.Y. 2010-11, 2011-12 & 2012-13
aforesaid interest was paid to LIC Housing Finance Ltd. and considered of interest amounting to Rs.1,39,612/- in respect of property situated at Yoginiketan Society, Kalawad Road, Rajkot. Apparently this property is being used by the assessee as his resident. 'Naturally no income from this property has been declared in the return. However, a small portion of the interest amount to Rs. 6,454/- was claimed in the return in respect of yet another house property at 3, Jagnath pot, Kalawad Road, Rajkot. No income from this property has been declared in the return of income filed. Therefore the assessee's claim is not acceptable as such the deduction claimed amounting to Rs.6,454/- is treated as income from salary and added to the total income." Assessing Officer estimated Annual Letting Value (hereinafter Departmental Valuation Officer. Under the provisions of Section 55A, a reference to Valuation Officer can be made for ascertaining the Fair Market Value of a capital asset for the purpose of Chapter IV dealing with determination of income under the head capital gain. In case before us, issue is not of capital gain or fair market value. The determination of annual value has to be done' by concerned Municipal Corporation as envisaged in Circular 204 dated 24.07.1976. CBDT accepted that u/s.23(1)(a) sum for which the property might reasonably be expected to let from year to year is the municipal valuation of the property. Same view has been taken by Hon"ble Calcutta High Court in case of CIT vs. Prabhabati Bansali I41 ITR 419 (Cal). In view of this, Officer-is directed to adopt the municipal valuation as ALV for the purpose of tax in question.
In the result, the appeal of assessee is allowed.
Since there is no disparity on fact, therefore, we direct the Assessing Officer to determine the ALV of the house property in these years in accordance with ITAT order passed in A.Y. 2008-09.
In the next fold of grievance assessee has pleaded that Ld. CIT(A) has erred in not directing the Assessing Officer to allow interest expenditure of Rs. 5,878/- and Rs. 2,784/- against house property income. Since this issue has not been separately discussed by the Assessing Officer in A.Y. 2010-11, we have remitted the issue with regard to determine of ALV in all these years. Therefore we set aside this issue to the file of Ld. Assessing Officer. The Ld. Assessing Officer shall verify whether any interest expenditure is allowable to the
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assessee against house property income then after examination he would decide the issue in accordance with law.
Ground No. 5 in A.Y. 2012-13:- This issue has been discussed by the Ld. CIT(A) as under:-
The AO had made addition of Rs. 98985/- being business expenses disallowed as there was no business carried on by assessee. The assessee. Did not agitate this addition. However it was seen that in the body of order the disallowance was stated to be of Rs. 43620/- (maintenance expenses), Rs. 43620/- (transaction fees), staff salary, electricity bills etc. (Rs. 167407/-) and depreciation (Rs. 11967/-). The AO was asked to reconcile the discrepancy and having received his report that disallowance needs to be enhanced to Rs. 266596, the same was confronted to assessee. The assessee has contested this disallowance stating that disallowance stating that disallowance of Rs. 43602+Rs. 43602/- has already been made by AO and that balance expenses were for additional work. Having considered facts and circumstances of the case, I do not find any merit in claim of the assessee. As regards the additional work the assessee has already been allowed expenses of Rs. 181226/- in Ground of Appeal 3. No expenses other than above stated reimbursements are allowable to assessee as he is earning income from salary and these are stately business expenses against which no such business income has been shown. Accordingly the business expense of Rs. 266596/- are disallowed, which results into enhancement of Rs. 266596/- Rs. 98985/-= Rs. 167611/-.
It is a consequential issue, whether assessee is entitle to any expenditure under the head business expenses, it is observed that while dealing with the issue in A.Y. 2010-11 we have held that assessee was not doing any business. He is entitled to the expenses which were reimbursed by the LIC for performing the duty as a Senior Business Associate. The assessee separately cannot claim any expenditure under the head business expenditure. In A.Y. 2011-12 & 2012-13, the assessee has not given us the breakup of the expenditure additionally given by LIC to him for earning additional incentive or performing duty as a senior business associate. The scheme considered by us in A.Y.
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2010-11 and reproduced above, authorized 10 % of additional convenience allowance or as allowance of the incentive bonus for procuring business, this 10% is to be determined on the basis of certificate of LIC giving the breakup of these expenditure. Thus this issue is also set aside to the file of Assessing Officer. Ld. Assessing Officer first determined the expenditure which were to be construed as a reimbursed by the LIC for procuring business in the capacity of a senior business associate and thereafter work out the total amount allowable to the assessee in A.Y. 2011-12 & 2012-13. These grounds of appeal are allowed for statistical purposes.
In the result appeals of the assessee are partly allowed.
Order pronounced in the Court on 18th April, 2018.
Sd/- Sd/- (PRAMOD KUMAR) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 18/04/2018
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :
अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण / DR, ITAT, 6. गाड� फाईल / Guard file.
आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad