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Income Tax Appellate Tribunal, DELHI BENCH “ G”: NEW DELHI
Before: MS SUSHMA CHOWLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the two appeals of different assesses, pertaining to the same group, involving the same issue of levy of penalty u/s 271 (1) (c ) of the act , on credit card expenditure incurred through the credit card of the assessee, for the purpose of business of another company, partly disallowed in the hands of that company, added in the hands of the assessee as perquisites. Page | 1 The facts are identical in both the cases; therefore, both these appeals are disposed of by this common order.
First, we come to the appeal in the case of Late Shri Jaswant singh Madhok, This is an appeal filed by the assessee against the order of the ld CIT (A)-25, New Delhi dated 29.09.2016 for the Assessment Year 2012-13.
The assessee has raised the following grounds of appeal:- “1. That the Id. CIT(A) has erred in sustaining the penalty of Rs.29,331/- imposed u/s 271(1)(c) of the Act without appreciating the facts of the case and detailed submissions made by the appellant.
2. That the Id. CIT(A) has erred in not appreciating the facts of the case by holding that there is no double taxation.
3. That the Id. CIT(A) has erred in not adjudicating Ground Nos. 2 & 3 raised before him.
4. That the order imposing penalty is bad in law and void ab initio since in the show cause notice issued u/s 274 read with section 271 the Id. AO has not struck off the irrelevant clause of the notice, meaning thereby the AO has not apprise the assessee about the specific charge, under which assessee has been held guilty of penal action”
4. Briefly, the fact shows that assessee is an individual, deceased, was subjected to search under section 132 of the income tax act in case of Jay Polychem Ltd on 14/3/2012. The assessee was father of the persons controlling the business of Jay Polychem Ltd. Therefore, his case was also covered. Notice under section 142 (1) of The Act was issued to the assessee on 2/11/2012, which was complied with on 18/12/2012 by filing the return of ₹ 1,20,68,039/–. The assessment under section 143 (3) of the act was passed on 30/3/2014 wherein the addition of ₹ 27,56,384/- on account of expenses incurred by the assessee through its credit card. The dispute arose with respect to the credit card Page | 2 expenditure of ₹ 2 756384/– which was explained by the assessee that these credit card expenses are pertaining to Jay Polychem Ltd for its business. The AO rejected the explanation of the assessee holding that as assessee has failed to submit the basis as to how these expenses are related with the business of Jay Polychem Ltd. He held that these expenses were incurred for the personal purposes of the director as those expenses have been disallowed in the hands of that company, as they were not incurred „wholly and exclusively‟ for the purpose of the business of that company. Since the assessee has derived benefit from these expenses, they were added to the total income of the assessee as perquisites. The penalty proceedings under section 271 (1)( c) f the act was also initiated. Accordingly the total income was assessed at ₹ 14824423/–. In the assessment, order while initiating the penalty proceedings the learned assessing officer did not say whether assessee has furnished inaccurate particulars of its income or has concealed income.
5. Meanwhile, the disallowance made in the hands of M/s Jay Ploychem Ltd travelled to the learned CIT – A, wherein substantial relief was granted to that company with respect to these expenditure added in the hands of the assessee. Out of the total disallowance in the hands of that company the disallowance of Rs 26,61,460/– was deleted and only disallowance to the extent of ₹ 94924/– sustained. Therefore in the case of the assessee, the learned assessing officer further issued show cause notice on 16 /2/2016 stating that assessee has concealed the particulars of its income and furnished inaccurate particulars of income in terms of explanation 271 (1) ( c) of the income tax act 1961. The assessee submitted its reply on 15/2/2016 stating that substantial expenses have been deleted in the hands of that company. It is merely a disallowance of expenditure in the hands of that company, which has resulted into the income in the hands of the assessee. It was further stated that the learned CIT – A in the order of that company has never held that expenditure at all resulted in to any benefit to any of the directors of the company including the appellant. These expenses were disallowed only for the reason that they were not incurred „wholly and exclusively‟ for the purposes of the business of that company. The learned assessing officer rejected the explanation of the assessee and held that assessee has concealed its income to the extent of ₹ 9 4924/– and levied the penalty of Rs. 29331/–. Thus, penalty order was passed on 22/3/2016.
6. The assessee challenged the same before the learned CIT – A. The learned CIT – A confirmed the penalty on the merits, for the reason that none attended before him. However, he did not answer each of the grounds of the appeal but dealt with all these grounds cumulatively and confirmed the penalty. Assessee aggrieved with the order of the learned CIT – A has preferred this appeal.
None appeared on behalf of the assessee; therefore, the issue is decided on the merits of the case as per information available on record.
The learned DR vehemently supported the orders of the lower authorities.
We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly, in this case the addition has been made in the hands of the assessee as „ perquisites‟ based on the disallowance made of expenses claimed by one of the companies, which was controlled by the sons of the assessee. The credit card expenditure of the assessee is claimed by that company is allowable expenditure. The disallowance was made in the hands of that company by the AO and confirmed by the learned CIT – A of that company. Merely a confirmation of disallowance in the hands of third company which book the credit card expenditure of the assessee, is taken as an income of the assessee , as according to AO assessee derived benefit of these expenditure. The fact shows that total expenditure of ₹ 2 756384/– were related to the credit card expenses of the assessee which were booked as an expenditure by that company and claimed as deductible expenditure. Out of that, it was found that credit card expenditure of Rs. 2661460/– out of the above sum of ₹ 2 756384/– was held to be allowable in the hands of that company. Therefore, only ₹ 94924 was the balance sum, which was taxed in the hands of the assessee as disallowance was confirmed in the hands of the company. On this sum, penalty was levied. Firstly, there is no allegation that assessee has not disclosed the above sum as expenditure made through credit card of the assessee which was claimed as expenditure of the other party. Only that company has claimed this expenditure as allowable expenditure in its return of income. Out of total expenditure only approximately 10% of the expenditure were not found to have been incurred for the business purposes of that company, therefore for that amount same was added to the income of the assessee. Therefore, merely because in expenditure is not held to be expenditure incurred wholly and exclusively for the purposes of the business of third party, resulting in to addition in the hands of the company, cannot result into levy of the penalty in the hands of the assessee. Firstly, the addition has been made on account of perquisites. For the taxation of perquisite, the AO should have established employer-employee relationship between the assessee and the company, which paid the bills. There is no such finding. The assessing officer is merely stated that assessee is a director of Madhok group of companies, but whether he was employee of Jay Polychem Ltd or not was established. Further those expenses were liability of the assessee but discharged by Jay Polychem was also not established. Merely being a director, can he be considered to be an employee of the company has also not been established. Further, whether the expenditure of the credit card was an obligation of the assessee, which was paid by the employer, was also not shown. However, we are not on the quantum addition made in the hence of the assessee, but on the penalty levied on the assessee with respect to the income already taxed. According to us, the assessee has disclosed complete details that these are the expenditure, which has been incurred by the assessee through his credit card; these expenses have been paid by one of the company as those expenses were pertaining to that company. The directors of that company examined during the course of search stated that this expenditure belonged to that particular company. The company claims such expenditure as allowable expenditure in its return of income, which travelled up to the level of the Commissioner of income tax appeals, who allows the appeal of that company and deleted the substantial part of the expenditure holding that they were for the purpose of the business of that company. In all these facts, the assessee has not concealed any particulars of his income. This was the statement of the assessee during the course of search also. This is confirmed by the directors of the company who were the relatives of the assessee. In view of this we do not find any merit in levy of the penalty on the assessee of Rs 29331/–.
There is another facet of the issue also. During the course of assessment proceedings where the assessment has been made, while making an addition, the learned assessing officer has not recorded any satisfaction whether the assessee has concealed his income or has furnished inaccurate particulars of income. At the time of levy of the penalty in the penalty order the assessing officer in para number 2 has categorically held that a show cause notice was issued on 30/3/2014 wherein the assessee was called upon to explain that it has concealed the particulars of its true income and furnished inaccurate particulars of its income in terms of explanation 271 (1 ) ( C ) of the income tax act 1961. Further, in the same order in para number 4, while issuing the other show cause notice for levy of penalty on 16/2/2016, the twin challenges were shown to the assessee for the explanation. However, as per para number 6 of the penalty order, the learned assessing officer has categorically held that assessee has concealed his income. The learned CIT – A has also confirmed the penalty for concealment of income. Thus from the above facts it is clear that none of the twin challenges were specifically confronted to the assessee at the time of assessment order, at the time of issuing two different notices for levy of the penalty. However, the penalty was levied on one of the charges i.e. of concealment of income. The purpose of the issue of notice is to put forth specific charge before the assessee for his explanation. It cannot be allowed that no specific charges are made against the assessee and at the time of passing of the penalty order penalty is levied on one of those charges. This issue is squarely covered in favour of the assessee by the decision of Honourable Delhi High court in case of Sahara India Life Insurances Co Ltd 475/2019 dated 2-8-2019 where in para no 21 of that order it is so held that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Therefore, also, the penalty levied by the learned assessing officer and confirmed by the learned CIT – A cannot be upheld. In the result, we direct the learned assessing officer to delete the penalty of ₹ 20 9331/– imposed under section 271 (1)( c) of the act.
Accordingly, appeal filed by the assessee is allowed.