BHASKAR SEN,KOLKATA vs. ITO, WD-16(4), KOLKATA, KOLKATA

This is an appeal filed by the assessee against the order of Ld. CIT(A)-XIV, Kolkata dated 11.03.2014 for AY 2008-09. None appeared on behalf of the revenue. After hearing the Ld. AR and considering the material available on record, we dispose of the appeal ex parte qua the revenue.

The first ground of appeal is against the reopening u/s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) which is not pressed by the Ld. AR, therefore, the same is dismissed as not pressed.

Brief facts of the case are that the assessee is a director of M/s B.C.C. Shipping & Ship Building Ltd. (in short BCCSSBL) and in his return of income declared income chargeable under the head salaries at Rs.4,36,270/-, which in turn was processed u/s. 143(1) of the Act. Later on, the AO after verification of the certificate i.e. Form 16 issued u/s. 203 of the Act by the assessee’s employer M/s. BCCSSBL, it was noticed that the assessee had received gross salary of Rs. 24 lacs and that the assessee has claimed exemption u/s. 10 of the Act for Rs.19,61,230/- on account of reimbursement of expenses incurred for office. The AO noticed that several opportunities were given to the assessee, however, the notice at times were returned back and later on at the fag end of the assessment proceedings, the Ld. AR appeared once or twice only, however he could not explain/furnish the documents to substantiate the claim made by the assessee. The AO thereafter made a finding at para 5 as under: “5. On perusal of the salary certificate (Form No. 16) submitted by the assessee with his return it is observed that the assessee has claimed exemption for an amount of Rs.19,61,230/- u/s. 10 of the Act under the head “Reimbursement” of Office Expenses.” During the course of assessment, the assessee has failed to produce any explanation regarding the claim of this exemption. Moreover, no provision of the Act allows exemption under this head as claimed by the assessee from his salary income. Hence, the exemption claimed of Rs.19,61,230/- is disallowed.”

We have heard the submissions of the Ld. AR and have gone through the case records carefully. We note that the AO after perusal of the salary certificate i.e. Form No. 16 submitted by the assessee with his return was of the view that the assessee had claimed exemption for an amount of Rs.19,61,230/- u/s. 10 of the Act under the head “Reimbursement of Office Expenses”. According to the AO, during the re-assessment proceedings the assessee failed to produce any explanation regarding the claim of this exemption, and, therefore, he did not allow the claim and an amount of Rs.19,61,230/- was disallowed. The Ld. CIT(A) confirmed it. We do not agree with the action of the authorities below. It should be kept in mind that Form 16 is the certificate issued by the employer to an employee. In the said TDS certificate, the employer is bound to disclose all the payments made by him to the employee under the head gross salary and also spell out clearly the amount which is exempt as per the provisions of the Act i.e. any amount which is reimbursed to the employee which does not form part of the taxable salary of the employee. In this case, the Form 16 has been issued by the employer i.e. M/s. BCCSSBL. In the said certificate it was clearly stated by the employer that Rs.19,61,230/- is exempt because that was the reimbursement of office expenses that means the employer has reimbursed the amount which has been spent by the employee on employer’s behalf. The expenses made on behalf of the employer by the employee are reimbursement of expenses and cannot partake the character of income. It is well settled that the amounts paid by way of reimbursement of expenses do not constitute income in the hands of recipient (here the assessee). Form 16 is a certificate issued by the employer and the correctness of the same can be ascertained by the employer. We note that the entire disallowance has been made on the plea that the assessee has failed to explain before the AO of the reimbursement of office expenses as stated in Form 16 issued by the employer. In such a scenario, we are of the considered opinion that the matter needs to be re-examined by the AO for which we set aside the order of the Ld. CIT(A) and remand the matter back to the file of the AO with a direction to him to enquire from the employer the veracity of what is stated in Form 16 which has been issued by the employer M/s. BCCSSBL and ascertain the claim of the assessee in respect to his claim of reimbursement of expenses and thereafter, after hearing the assessee the issue be adjudicated de novo.

The third ground of appeal is against the action of the Ld. CIT(A) in confirming an addition of Rs.5 lacs towards salary de horse the certificate issued by the employer. During the reassessment proceedings, the AO noted that the salary certificate issued by the employer reflected gross salary of Rs.24 lacs to the assessee. However, when he verified from the bank statement of the assessee, he found that the assessee had received a total amount of Rs.29 lacs from his employer. Thus, he found that there was a discrepancy of Rs. 5 lacs between the amount of salary shown in the salary certificate and the amount reflected in the bank statement. The assessee was asked to explain the discrepancy. The Ld. AR of the assessee stated that since the assessee being the director of the company has to travel to various places on official discharge of his duties along with his staff and other employees, and this amount (Rs. 5 lakhs) was the advance payments made by the company to the assessee to meet the expenses on behalf of the employer and these amounts were the fund deposited by the employer to the assessee in his bank account. According to the assessee, it was advance for expenses to be met by the assessee in the course of business and which were incurred on behalf of the employer and thus cannot partake the character of income. Before the AO, the Ld. AR stated that he would produce the breakup of the amount and the employer’s certificate supporting the same, however, the AO records that the Ld. AR did not do so, therefore, the AO made the addition of Rs. 5 lacs. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before us.

We have heard the submissions of the Ld. AR and have gone through the case records carefully. We note that there is a discrepancy of Rs. 5 lacs between the amount of salary shown in the salary certificate and amount shown in the bank statement of the assessee. According to the assessee, being a director of the company he had to travel along with other employees to various places in discharge of his official duties and for that he had to spend money on behalf of the employer which the employer has made advance deposit in his account; and so the advance amount thus deposited for incurring expenses in the course of business on behalf of the employer cannot be treated as income in the hands of assessee. We note that since the Ld. AR of the assessee had assured before the AO that he would be producing the break up along with the employer certificate failed to do so, then the AO made the addition which was confirmed by the Ld. CIT(A). We note that this issue needs to be reexamined by the AO because of lack of time for the assessee to produce the documents. Therefore, we set aside the order of the Ld. CIT(A) and remand the matter back to the file of the AO with a direction that the AO should enquire from M/s. BCCSSBL and call for details regarding the discrepancy of Rs. 5 lacs in Form 16 issued by it and the amount deposited by it in the bank account of the assessee and while doing so, if the claim of the assessee that this is nothing but advances made by the employer to assessee for expenses anticipated to be incurred on its behalf for the purpose of business, then no addition should be made in the hands of the assessee. However, if the assessee or the employer fails to give any supporting evidence to the claim made by the assessee then the addition would be sustained. With the aforesaid observation, we remand the matter back to the file of the AO for fresh adjudication on this issue and the AO to pass orders after hearing the assessee and the assessee is directed to cooperate with the de novo proceedings. This ground of appeal of assessee is allowed for statistical purposes.

In the result, appeal of assessee is partly allowed for statistical purposes.