ASHFAQUE AHMED MECCA,CHENNAI V. ACIT, CENTRAL CIRCLE 1(1), CHENNAI

ITA 3100/CHNY/2024

AI Insights

This case involves a group of sixteen appeals filed by four assessees against the orders of the CIT(A), Chennai, which confirmed the additions made by the Assessing Officer (AO) under section 2(24)(iv) of the Income Tax Act, 1961. The appeals pertain to the assessment years 2019-20 to 2022-23. The primary issue was whether the CIT(A) was justified in confirming the additions despite the fact that the company, in which the assessees are directors, had already disallowed the credit card payments as personal in nature under section 37(1) of the Act. The Tribunal, referencing previous judgments and the principle of avoiding double taxation, ruled in favor of the assessees.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 36420 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2022-2023
• Other Referred Cases: ACIT vs. Shri Ali Asgar Shamsuddin, Mrs. Bakhtawar B. Dubash vs. DCIT, Mrs. Sudha D. Dubash vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD D. MUDALIAR
• Keywords: Business income; Search and seizure
• Section: 143(3); 37; 37(1)

Judgement Text

"आयकर अपीलȣय अͬधकरण,‘ बी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं ᮰ी मनोज कुमार अᮕवाल, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 3085, 3086, 3087 & 3088/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Years:2019-20, 2020-21, 2021-22 & 2022-23 Shri Mecca Rafeeque Ahmed, No.151/4, Mount Poonamallee Road, Ramapuram, Chennai – 600 089. PAN: AAAPA 6533C Vs. The Assistant Commissioner of Income Tax, Central Circle 1(1), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) & आयकर अपील सं./ITA Nos.: 3089, 3090, 3091 & 3092/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Years:2019-20, 2020-21, 2021-22 & 2022-23 Shri Israr Ahmed, No.151/4, Mount Poonamallee Road, Ramapuram, Chennai – 600 089. PAN: AAAPI 4732P Vs. The Assistant Commissioner of Income Tax, Central Circle 1(1), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) & आयकर अपील सं./ITA Nos.: 3093, 3094, 3095 & 3096/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Years:2019-20, 2020-21, 2021-22 & 2022-23 Shri Mecca Iqbal Ahmed, No.151/4, Mount Poonamallee Road, Ramapuram, Chennai – 600 089. PAN: AAJPI 1257L Vs. The Assistant Commissioner of Income Tax, Central Circle 1(1), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) - 2 - ITA Nos.3085 to 3100/CHNY/2024 & आयकर अपील सं./ITA Nos.: 3097, 3098, 3099 & 3100/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Years:2019-20, 2020-21, 2021-22 & 2022-23 Shri Ashifaque Ahmed Mecca, No.151/4, Mount Poonamallee Road, Ramapuram, Chennai – 600 089. PAN: AAAPA 6598H Vs. The Assistant Commissioner of Income Tax, Central Circle 1(1), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellants by : Shri D. Anand, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Vinod D. Mudaliar, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 15.01.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 21.01.2025 आदेश /O R D E R PER BENCH: These are group of sixteen appeals preferred by four assessees. The appeals preferred by the assessees are directed against sixteen orders of the CIT(A), Chennai, all dated 29.11.2024. The relevant assessment years are 2019-20 to 2022- 23. Common issue is raised in these appeals. Hence, they were heard together and are being disposed off by this consolidated order. 2. The solitary issue raised is whether the CIT(A) was justified in confirming the addition made by the AO u/s.2(24)(iv) of the - 3 - ITA Nos.3085 to 3100/CHNY/2024 Income Tax Act, 1961 (hereinafter the ‘Act’) inspite of the fact that company in which the assessee is a Director has already disallowed the credit card payment being personal in nature u/s.37(1) of the Act. We shall narrate the facts in ITA Nos.3089/CHNY/2024 to 3092/CHNY/2024 (Israr Ahmed) concerning assessment years 2019-20 to 2022-23 and our finding rendered therein will apply mutatis mutandis to the other cases (since the facts are identical in all the cases except for variation in figures and name of the company in which the assessees are directors). ITA Nos.3089 to 3092/CHNY/2024 (AYs 2019-20 to 2022-23) – Israr Ahmed 3. Brief facts in relation to the above case are as follows:- The assessee is an individual. A search and seizure operation was carried out in the case of M/s. Farida group of companies and others on 23.08.2022. During the course of search proceedings, evidences relating to claim of personal expenses of the assessee- Director, paid through credit cards of the company as welfare expenses in the books of the company, M/s. Farida Prime Tannery Pvt. Ltd., were found. When questioned, the same were admitted as personal expenses of the Director, booked as welfare expenses in the books of the companies. Accordingly, the cases of the - 4 - ITA Nos.3085 to 3100/CHNY/2024 assessee were reopened by issue of notices u/s.148 of the Act for assessment years 2019-20 to 2021-22 and the case for assessment year 2022-23 was taken up for regular scrutiny and assessments were completed by bringing to tax the entire personal expenses booked in the hands of the companies as welfare expenses, being benefit derived by the assessee-director u/s.2(24)(iv) of the Act. The details of original return of income and the return of income filed in response to notice u/s.148 of the Act and the additions made are as under:- Particulars 2019-20 2020-21 2021-22 2022-23 Assessment completed u/s 147 r.w.s. 143(3) 147 r.w.s. 143(3) 147 r.w.s. 143(3) 143(3) Return of income filed u/s.139(1) of the Act Rs.4,40,14,220/- Rs/1,90,09,250/- Rs.99,91,010/- Rs.1,26,43,470/- Return of income filed in response to notice u/s.148 Rs.4,40,14,220/- Rs.1,90,09,250/- Rs.99,91,010/- - Addition towards credit card payment u/s.2(24)(iv) Rs.28,29,702/- Rs.20,92,543/- Rs.19,21,825/- Rs.22,80,572/- 4. Aggrieved by the assessments completed for assessment years 2019-20 to 2022-23, the assessee preferred appeals before the First Appellate Authority. The CIT(A) rejected the submissions of the assessee and confirmed the addition made by the AO u/s.2(24)(iv) of the Act. - 5 - ITA Nos.3085 to 3100/CHNY/2024 5. Aggrieved by the orders of the CIT(A), the assessee has filed the present appeals before the Tribunal. The ld.AR submitted that the expenditure has already been disallowed in the hands of the company namely M/s.Farida Prime Tannery Pvt. Ltd. Therefore, the said sum cannot be added as a perquisite in the hands of the assessee Director. The ld.AR submitted that the provisions of section 2(24)(iv), 17(2)(iv) & 28(iv) of the Act is not applicable as the company has already disallowed the expenditure in its hands. Hence, it is not any benefit or perquisite in the hands of the assessee Director. It was submitted that taxing the said amount in the hands of the assessee will amount to taxing the same amount twice since the expenditure has been disallowed and taxed in the hands of the company. It was further submitted that the issue is squarely covered in favour of the assessee by the order of the Chennai Bench of the Tribunal in the case of ACIT vs. Shri Ali Asgar Shamsuddin in ITA No.242/Mds/2014 (order dated 05.12.2014), which in turn followed the order of the Mumbai Bench of the Tribunal in the case of Mrs. Bakhtawar B. Dubash vs. DCIT and Mrs. Sudha D. Dubash vs. DCIT in ITA Nos.4031 & 4032/Mum/03 (order dated 29.01.2009). - 6 - ITA Nos.3085 to 3100/CHNY/2024 6. The ld.DR supported the orders of the AO and the CIT(A). It was submitted that the addition was correctly made in the hands of the Director as perquisite u/s.2(24)(iv) of the Act. 7. We have heard rival submissions and perused the material on record. The addition u/s.2(24)(iv) of the Act in the hands of the assessee-Director amounts to double taxation for the following reasons: i) The Company, has already disallowed the personal expenses under Section 37(1) of the Act in its computation of income for the relevant assessment years and paid the applicable taxes. ii) The addition made by the AO results in taxing the same expenditure in the hands of both the Company and the assessee, which is contrary to the principle that an amount cannot be taxed twice. iii) The provisions of Sections 2(24)(iv), 17(2)(iv), and 28(iv) of the Act are not applicable since the disallowed expenditure has already been taxed in the hands of the Company and does not constitute a \"perquisite\" or \"benefit\" derived by the assessee-director. - 7 - ITA Nos.3085 to 3100/CHNY/2024 8. We find that expenditure has already been disallowed in the hands of the company and was not allowed as an expenditure as perquisite in the hands of the director. Therefore, the same cannot be added in the hands of the director since it will amount to taxing an amount twice. The provisions of section 2(24)(iv), 17(2)(iv) and 28(iv) of the Act are not applicable as the company already disallowed the said expenditure in its hand and the same has not been allowed as an expenditure in the hands of the company as the value of any benefit or perquisite. In view of the above, taxing the said amount in the hands of the assessee-director will amount to taxing the same amount twice since the expenditure has already been disallowed and taxed in the hands of the Company and again being taxed in the hands of the director as perquisite. It is the settled proposition of the law that an amount can be taxed only once and not twice. Since, in the case under consideration, the amount has already been taxed in the hands of the company by disallowing the same under section 37 of the Act, therefore, the same cannot be added in the hands of the director as value of any benefit or perquisite and thereby attracting the provisions of section 2(24)(iv), 17(2)(iv) and 28(iv) of the Act. 9. The First Appellate Authority in the impugned order erred in - 8 - ITA Nos.3085 to 3100/CHNY/2024 confirming the addition made by the assessing officer towards credit card payments u/s 2(24)(iv) of the Act. As mentioned earlier, the company had already disallowed the credit card payments related to personal in nature under section 37[1] of the Act as agreed by the assessee before the DDIT[investigation] during the course of the search. The action of the assessing officer and CIT(A) amounts to double taxation, once in the hands of the company and then in the hands of the assessee. 10. We find that the issue is squarely covered in favor of the assessee by the order of the ITAT, Chennai Bench, in the case of ACIT Vs. Shri Ali Asgar Shamsuddin in ITA No.242/Mds/2014 (order dated 05.12.2004) which followed the order of the Mumbai ITAT, in the case of Bakhtwar B. Dubash and Suda D. Dubash in ITA No.4031 and 4032/Mum/2003 (order dated 29.01.2009). 11. In the case of Ali Asgar Shamsuddin, the Chennai Bench of ITAT (supra) dealt with an identical issue where personal educational expenses incurred by a company for its director were disallowed and taxed in the company's hands. The assessing officer disallowed the personal expenditure in the hands of the company, - 9 - ITA Nos.3085 to 3100/CHNY/2024 M/s. Poly hose India Private Limited, and company had paid its tax liability arising thereon and made addition in the hands of the director also. The Tribunal held that the same amount could not be taxed again in the director's hands, as it would amount to double taxation. The Chennai Bench of ITAT decided the issue in favor of the assessee on similar and identical circumstances. The ratio of the order of ITAT in the case of Shri Ali Asgar Shamsuddin (supra) was that there cannot be any double taxation on the same expenditure, once in the hands of the company and then in the hands of the assessee-director. 12. In the case of Bakhtawar B. Dubash & Sudha D. Dubash (supra) Mumbai ITAT held that foreign travel expenses disallowed in the hands of the company could not be added as perquisites in the hands of the director, as this would result in double taxation. The tribunal observed that the provisions of Sections 2(24)(iv), 17(2)(iv), and 28(iv) of the Act were inapplicable since the expenditure was already taxed in the hands of the company. 13. In the instant case, it is an undisputed fact that the company had agreed before the DDIT[Investigation] and disallowed the - 10 - ITA Nos.3085 to 3100/CHNY/2024 credit card payments being personal in nature u/s. 37(1) of the Act while filing the return of income of the company for the assessment years under consideration. Once, the company, did not claim the credit card payments being personal in nature as business expenditure while computing the business income, (due to disallowance made by the company), the aforesaid credit card payment relating to personal in nature cannot be taxed again in the hands of the assessee-director as income u/s.2(24)(iv) of the Act. 14. The assessing officer himself has observed that during post search proceedings, the assessee suo motto submitted before the DDIT [Investigation] and disclosed the details of official expenditure and personal expenses of Directors related to the payment of credit card bills in the hands of the company. Since the company did not claim the personal expenditure while computing the business income, the assessee did not receive any additional benefit from the company. The assessing officer is therefore totally unjustified in making the addition in the hands of the assessee being the personal expenditure of the director paid by the company which was disallowed in the hands of the company and the company paid taxes there on since it amounts to double taxation. - 11 - ITA Nos.3085 to 3100/CHNY/2024 15. The judgements relied on by the CIT(A) are distinguishable on facts, as in those cases, the company did not disallow the expenses u/s. 37(1) of the Act in the hands of the company. 16. Further, it is to be noted that while passing of assessment orders u/s. 148/143[3] of the Act in the case of the company namely Farida Prime Tannery Private Limited, the assessing officer added the credit card expenses related to official expenses also as personal expenses u/s.37(1) of the Act and added to the total income of the assessee company in addition to the disallowance made by the assessee company. The assessing officer accepted the disallowance made by the assessee company u/s. 37(1) of the Act and initiated penalty u/s. 271AAB(1A) of the Act, which clearly proves the department itself agrees that the personal expenses made by the assessee through credit card is to be disallowed u/s. 37(1) of the Act only. 17. For the aforesaid reason and considering the order of the Chennai Bench of the Tribunal in the case of Ali Asgar Shamsuddin, supra and Mumbai Bench of the Tribunal in the case of Mrs. Bakhtawar B. Dubash & Mrs. Sudha D. Dubash, supra, we delete - 12 - ITA Nos.3085 to 3100/CHNY/2024 the impugned addition made by the AO, which was confirmed by the CIT(A). It is ordered accordingly. 18. Since the facts are identical to ITA Nos.3085 to 3088/CHNY/2024 (Mecca Rafeeque Ahmed), ITA Nos.3093 to 3096/CHNY/2024 (Mecca Iqbal Ahmed) and ITA Nos.3097 to 3100/CHNY/2024 (Ashifaque Ahmed Mecca), our findings in ITA Nos.3089 to 3092 (Israr Ahmed) in paras 7 to 17 above will apply mutatis mutandis to these appeals also. 19. In the result, the appeals filed by the assessees in ITA Nos.3085 to 3100/CHNY/2024 are allowed. Order pronounced in the open court on 21st January, 2025 at Chennai. Sd/- Sd/- ( मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चेÛनई/Chennai, Ǒदनांक/Dated, the 21st January, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellants 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. "