COMMISSIONER OF INCOME-TAX VS A. G. ABRAHAM
2001 P T D 2323
[239 I T R 835]
[Madras High Court (India)]
Before N. V. Balasubramanian and Mrs. A. Subbulakshmy, JJ
COMMISSIONER OF INCOME‑TAX
Versus
A. G. ABRAHAM
T.C. No.1329 of 1982 (Reference No.820 of 1982), decided on 24/01/1998.
Income‑tax‑‑‑
‑‑‑‑Penalty‑‑‑Concealment of income‑‑‑Marriage expenses incurred by company at the time of assessee‑director's daugter's marriage debited as miscellaneous expenses and written .off‑‑‑Auditor's note to that effect in profit and loss account of company ‑‑‑I.T.O. adding expenses as perquisites and IAC levying penalty for concealment ‑‑‑Assessee under bona fide impression that said expenditure by company not assessee's income‑‑‑No concealment of income by assessee‑‑‑Indian Income Tax Act, 1961, S.271(1)(c).
For the assessment year 1972‑73, the assessee, a director of a company, filed a return admitting an income of Rs.20,971. The Income‑tax Officer made an addition of Rs.25,980 towards the value of perquisites and the assessment was completed by him on a total income of Rs.48,940. The additions made by the Income‑tax Officer towards the perquisites included an amount of Rs.24,208 debited to the profit and loss account of the company as expenses incurred by the assessee at the time of marriage of his daughter. The Income‑tax Officer initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, and referred the matter to the Inspecting Assistant Commissioner for the purposes of levying penalty. According to the Inspecting Assistant Commissioner, the assessee drew money from the company for his daughter's marriage in the hope that it would be treated as‑ a loan due from him to the company. But the company's accountant wrote ff this amount in the miscellaneous expenses of the company and that was pointed out by the auditors in the notes appended to the profit and loss account of the company and that the auditors overlooked to include the said sum of Rs.24,208 in the personal return of the assessee. The Inspecting Assistant Commissioner, therefore, held that the assessee's case clearly warranted levy of penalty and accordingly he levied penalty of Rs.25,980 on the assessee. The Tribunal held that this item of marriage expenses of Rs.24,208 could not be treated as concealed income and a view could be taken that the assessee‑director had misused the funds of the company for his personal use. On a reference:
Held, that, according to the Appellate Tribunal the amount drawn by the assessee could not be treated as perquisite in his hands and the assessee was under the bona fide impression that the marriage expenditure debited in the profit and loss account of the company would not be treated as income and, therefore, the Tribunal was right in holding that there was no concealment of income by the assessee.
C.V. Rajan for the Commissioner.
JUDGMENT
N.V. BALASUBRAMANIAN, J.‑‑---In pursuance of the directions of this Court, the Income‑tax Appellate Tribunal has stated a case and referred the following questions of law to us under section 256(2) of the Income Tax Act, 1961, for the assessment year 1972‑73 for our consideration:
"(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the entire penalty of Rs.25,980 levied under section 271(1)(c) in the assessee's case for the assessment year 1972‑73?
(2)Whether, the Appellate Tribunal's finding that there was no concealment of income or furnishing of inaccurate particulars of such income is based on valid and relevant material and is reasonable view to take on the facts of the case?"
The assessee is a director of Samarias Trading Co. (P.) Ltd., Madras. For the assessment year 1972‑73, the assessee filed a return admitting an income of Rs.20,971. The Income‑tax Officer made an addition of Rs.25,980 towards the value of perquisites and the assessment was completed by him on a total income of Rs.48,940.
The additions made by the Income‑tax Officer towards the perquisites are as under:
Rs.
(i)Samarias Trading Co had debited the profit and24,208
loss account a sum of Rs.24,208 as expenses
incurred by the assessee at the time of his
daughter's marriage, This is nothing but a
perquisite given to the assessee. Hence, the
amount is added:
(ii)Depreciation on fridge placed by the company at192
the assessee's disposal.
(iii)Perquisite by way of telephone charges incurred1,452
on the assessee's behalf.
(iv)Rent paid by the company for the assessee's128
residence Rs.14,400 which includes an element of
perquisite to the extent of Rs.12,358 against
Rs.12,230 adopted by the assessee.
‑‑‑‑‑‑‑‑‑‑‑
25,980
‑‑‑‑‑‑‑‑‑‑‑‑
The Income‑tax Officer held that but for the fact that the company's assessment was also simultaneously taken up for disposal, the payments of perquisites made to the assessee would have escaped assessment and the assessee would have been under assessed. According to the Income‑tax Officer, the assessee should have admitted the benefits that were received or enjoyed by him, though he may be of the view that it would not be perquisite in his view. The Income‑tax Officer, therefore, initiated penalty proceedings under section 271(1)(c) of the Income‑tax Act and referred the matter to the Inspecting Assistant Commissioner for the purpose of levying penalty. The Inspecting Assistant Commissioner found that the company filed its return on December 30, 1972 and the assessee‑director filed his return on January 4, 1974, and according to the Inspecting Assistant Commissioner the assessee drew money from the company for his daughter's marriage in the hope that it would be treated as a loan due from him to the company. But the company's' accountant wrote off this amount in the miscellaneous expenses of the company and that was pointed out by the auditors in the notes' appended to the profit and loss account of the company and that the auditors overlooked to include the said sum of Rs.24,208 in the personal return of the assessee. The Inspecting Assistant Commissioner found that even though the auditor drew the attention of the company to the charging of personal expenditure of the managing director to the revenue account, the assessee did not choose to include the amount in his individual return and had taken a chance with the Income‑tax Officer. The Inspecting Assistant Commissioner, therefore, held that the assessee's case clearly warranted levy of penalty and accordingly he levied penalty of Rs.25,980 on the assessee.
The assessee appealed to the Income‑tax Appellate Tribunal. The Income‑tax Appellate Tribunal held that out of the additions made in the assessee's individual assessment, if any concealment of the income could be charged, it could be only with reference to the marriage expenses of Rs.24,208 treated as perquisites by the Income‑tax Officer. The Tribunal held that even this item could not be treated as concealed income and a view can be taken that the asses see‑director has misused the funds of the company for his personal use and it was a case where the people interested in the company or the authorities concerned failed to take note of such misuse and the assessee cannot be made liable for penalty under the provisions of the Income‑tax Act. The Tribunal also held that a reasonable man cannot be attributed with a knowledge, belief, idea or impression that the marriage expenditure debited in the profit and loss account in the company's account will be an item chargeable to tax in his personal assessment. The Tribunal, therefore, held that there was no concealment of income and accordingly cancelled the penalty levied.
We are of the view that the Appellate Tribunal has given cogent reasons for cancelling the penalty. The view of the Appellate Tribunal that there was misuse of funds of the company's funds for his personal use and it cannot be treated as perquisite is a reasonable one on the facts of the case and the Appellate Tribunal also noticed that as regards the marriage expenses it is highly doubtful whether it can be referred to as a perquisite or a dividend in the hands of the director, and it was not one of the terms and conditions of the service of the assessee with the company that his personal expenditure like marriage, etc., will be financed by the company. According to the Appellate Tribunal the amount drawn by the assessee cannot be treated as perquisite in his hands and the assessee was under the bona fide impression that the marriage expenditure debited in the profit and loss account of the company would not be treated as income. Since the Appellate Tribunal has come to a conclusion on materials that there was bona fide error on the part of the assessee and there was no concealment of income we are of the view that the finding of the Appellate Tribunal is arrived at on the facts of the case and accordingly we are of the opinion that there is no infirmity in the order of the Appellate Tribunal in holding that there was no concealment of the income by the assessee.
Accordingly we answer both the questions of law referred to us in the affirmative and against the Department. No costs.
M.B.A./268/FCReference answered.