SHARAD KUMAR SARAF,MUMBAI vs. ASST CIT 20(3), MUMBAI

O R D E R

Per Shamim Yahya, AM

. Shri Sharad Kumar Saraf. in sustaining 50% of the addition on an ad-hoc basis and arbitrary/presumptive manner which is bad in law and needs to be deleted. The appellant craves, leave to add, amend, alter, omit any of the grounds of appeal before the hearing of the appeal, if so advised.

3.1 In this case the Assessing Officer asked the assessee’s representative to furnish the details of credit card expenses / statement for F.Y.2005-2006 (A.Y. 2006-2007). In response to that, vide submission dated 04.09.2013, the assessee’s representative furnished the copy of credit card statement.

3.2 Further the Assessing Officer asked the assessee to furnish the following details. (i) Month-wise expenses incurred through credit card. (ii) Sources of payment of credit card bills and (iii) If credit card expenses were paid by the employers, then how much expenses were recovered from you.

3.3 In response to that, the assessee' s representative furnished the requisite details vide submission dated 06.01.2014. However, in reply to how much expenses were recovered from you by the company following reply was furnished by the assessee :

"The payment of expenses incurred through the credit card is mode by M/s Technocraft Industries (India) Ltd. by cheque from their account Kindly also note that the expenses were relating to . Shri Sharad Kumar Saraf. business of the company and accordingly no expenses were recovered from me ". 3.4 Further during the assessment proceedings, the assessee's representative was asked to furnish the copy of the invoices in respect of the expenses incurred through credit card during F.Y .2005-06 (A.Y.2006-07) by the assessee in order to verify the claim of the assessee that all the expenses incurred are related to business. But, the assessee’s representative did not furnish / produce even a single bill / invoice for verification. In these circumstances, the A.O. was of the opinion that in the absence of complete documentary proof, it cannot be held that these expenses have been incurred wholly and exclusively for business purpose. Hence the A.O. held that the genuineness of such expenses has not been satisfactorily explained.

3.5 Since the assessee was unable to furnish the copy of invoices / bills, therefore, the claim of the assessee was not accepted by the A.O. and Rs.6,47,722.76 was hereby added to his income as perquisite u/s 17(2)(iv) of the Income-tax Act, 1961.

“5.2 In Ground No. 2, the appellant has challenged the taxation of perquisites amounting to Rs. 6,47,722/- u/s 17(2)(iv) on account of credit card expenses. During the re-assessment proceedings, the AO examined the credit card expenses of the appellant. The appellant submitted that credit card expenses incurred by him were paid by the company M/s TIIL by cheque from their bank account. The AO observed that the appellant

. Shri Sharad Kumar Saraf. had not produced documentary evidence to show that the expenses were for business purposes and proceeded to disallow the amount of Rs. 6,47,722.76. In appeal it was submitted that during the scrutiny proceedings, the appellant had furnished copies of ledger account in the books of M/s TIIL; copies of credit card statements of American Express Bank; clarification that payments were made by M/s TIIL since the expenses were related to the business of the company along with date-wise statement of expenses giving details of the nature of these expenses. It was stated that as Managing Director (exports) of M/s TIIL, the appellant was responsible for business expansion abroad and that a major chunk of the company's revenues is from export turnover. It was further stated that credit card companies do not issue cards in the name of corporate entities hence even for business expenses, credit cards have to be taken by the individual employees in their own names. The appellant drew attention to the fact that these were duly claimed and allowed as business expenses in the case of the company and were neither claimed by him as expenses nor reimbursed to him by M/s TIIL. 5.2.1 On consideration of the facts as they emerge from the impugned order and the submissions made in these proceedings, I find that the appellant vide submissions dated 06/01/2014 filed during scrutiny proceedings had furnished detailed break up of expenses incurred on the credit card in question. Perusal of the chart enclosed shows that these pertained to sales promotion expenses and travel \ expenses (both within and outside the country). The appellant had also filed names and addresses of customers located outside India in Hungary, Germany, Greece and Italy. In appeal, the submissions made before the A.O. have been furnished along with sample bills. Copies of sample bills/invoices filed by the appellant such as bill for stay at Holiday Inn, Downtown Shanghai from 31/08/2005 to 04/09/2005 at Room No. 1559 show that the name of the occupant is shown as Mr. Saraf, Shakunta/Sharad. Copy of sale bill dated 03/09/2005 from Zhisang and bill dated 02/09/2005 from Setan Shanghai Nanjing Xi Lu also shows the signature of the card - holder as . Shri Sharad Kumar Saraf. Shakuntala S. The name of the appellant's wife is Shakuntala Saraf. This clearly indicates that the appellant has travelled with family also and thus the claim that all the credit card expenses are only business expenses cannot be accepted. In view of these facts, the disallowance made by the AO is upheld at 50% i.e. Rs.3,23,861/- and the appellant gets relief of equivalent amount. Accordingly the ground raised by the appellant is partly allowed.”

5. Against the above order assessee is in appeal before the ITAT. We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that on the impugned amounts the employer company has paid fringe benefit tax. Hence he submitted that no disallowance is required. In this regard he also sought to submit additional evidence being order passed under section 115WE3 in the case of employer company for assessment year 2006 -2007. Learned Counsel further referred to the decision of ITAT Mumbai bench in the case of in the case of Bipin Kotak v. ACIT vide order dated 29 July, 2011. Referring to the above learned Counsel of the assessee submitted that these amounts cannot be added as perquisite in the hands of the assessee as fringe benefit tax there on has been paid by the employer company.

(i) Velji Deoraj & Co. v. CIT [(1968) 68 ITR 0708 (Bombay)] (ii) CIT v. Smt.Kamal C.Mehboobbani [(1995) 214 ITR 0015 (Bombay)] (iii) CIT v. Rao Raja Hanut Singh [(2001) 252 ITR 0528 (Rajasthan)] (iv) Ian Peter Morris v. ACIT [Civil appeal No.11385-11386 of 2016 (SC)] (v) Maruti Udyog Ltd. v. ITAT [(2000) 244 ITR 303 (Delhi)] (vi) UOP LLC v. Addl.Director of IT [(2007) 108 ITD 186 (Delhi)] 8. Now coming to the merits of the case we find that no details whatsoever regarding the credit card expense was submitted before the Assessing Officer. Hence addition of the impugned amount in the hands of . Shri Sharad Kumar Saraf. the assessee was fully justified. Upon assessee's appeal learned CIT(A) has admitted additional evidences and thereafter despite not being fully convinced by the arguments of the assessee he has granted 50% relief. We find that learned CIT(A) has accepted additional evidence without properly following the mandate of Rule 46A of Income Tax Rules. These rules provide that learned CIT(A) shall not accept any additional evidence unless the assessing officer has been given an opportunity to offer his comments thereupon. Hence, the order of learned CIT(A), which grants 50% relief to the assessee, is not at all sustainable.