COMMISSIONER OF INCOME TAX v. A. G. ABRAHAM.
TC No. 1329 of 1982, decided on January 24, 1998.
HIGH COURT OF MADRAS
C. V. Rajan, for the Applicant : None, for the Respondent
N. V. BALASUBRAMANIAN, J. :
In pursuance of the directions of this Court, the Tribunal has stated a case and referred the following questions of law to us under section 256(2) of the IT Act, 1961, for the asst. yr. 1972-73 for our consideration :
1. “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the entire penalty of Rs. 25,980 levied under section 271(1) (c) in 2„ assessee’s case for asst. yr.1972-73 ?
2. Whether, the Tribunal’s finding that there was no concealment of income or furnishing of inaccurate particulars of such income based on valid and relevant material and is a reasonable view to take on the facts of the case ?
2. The assessee is a director of M/section Samarias Trading Co. (P) Ltd. Madras. For the asst. yr. 1972-73 the assessee filed a return admitting an income of Rs. 20,971. The ITO made an additional of Rs. 25,980 toward the value of perquisites and the assessment was completed by him on a total income of Rs. 48,940.
3. The additions made by the ITO towards the perquisites are as under :
(i) Samarias Trading Co. has debited the P&L a/c 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 : 24,208
(ii) Depreciation on fridge placed by the company at the assessee’s disposal 192
(iii) Perquisite by way of telephone charges incurred on the assessee’s behalf 1,452
(iv) Rent paid by the company for the assessee’s 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 128, 25,980
4. The ITO 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 been escaped assessment and the assessee would have been underassessed. According to the ITO 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 ITO therefore, initiated penalty proceedings under section 271(1) (c) of the IT Act and referred the matter to IAC for the purpose of levying penalty. The IAC found that the company filed its return on 30th Dec., 1972, and the assessee-director filed his return on 4th Jan., 1974, and according to the IAC 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 P&L a/c 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 IAC 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 ITO. The IAC, therefore, held that the assessee’s case clearly warranted levy of penalty and accordingly he levied penalty of Rs. 25,980 on the assessee.
5. The assessee appealed to the Tribunal. The 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 ITO. The Tribunal held that even this item could not be treated as concealed income and a view can be taken that the assessee-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 IT 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 P&L a/c 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.
6. We are of the view that the Tribunal has given cogent reasons for cancelling the penalty The view of the 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 Tribunal also noticed that as regards the marriage expenses it is highly doubtful whether it can be referred 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 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 P&L a/c of the company would not be treated as income. Since the 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 Tribunal is arrived on the facts of the case and accordingly we are of the opinion that there is no infirmity in the order of the Tribunal in holding that there was no concealment of the income by the assessee.
7. Accordingly we answer both the questions of law referred to us in the affirmative and against the Department. No costs.