Dr Gogineni Uma, Hyderabad V. The ACIT, Circle-1(1), Guntur

ITA 32/VIZ/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2671 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-10-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 20-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: S RAMA RAO
• Keywords: Gift; Salary income; Opportunity of being heard; Benefit of exemption; Onus to prove
• Section: 10(14); 68; 15

Judgement Text

ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENA LI IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO S . 31 TO 35 /VIZAG/ 20 10 ASSESSMENT YEAR S : 2000 - 01 TO 2004 - 05 RE SPECTIVELY DR. GOGINENI UMA TENALI , GUNTUR DIST. ACIT, CIRCLE - 1(1) GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO. AADPU 3087A APPELLANT BY: SHRI S. RAMA RAO, ADVOCATE RESPONDENT BY: SHRI D.S. SUNDER SINGH, DR ORDER PER BENCH : - THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY LEARNED CIT(A), GUNTUR AND THEY RELATE TO THE ASSESSMENT YEARS 2000 - 01 TO 2004 - 05. SOME OF THE ISSUES URGED IN THESE ARE IDENTICAL IN NATURE AND HENCE THE SE APPEALS WERE HEARD TOGETHER AND ARE BEING D ISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST ISSUE WHICH IS COMMON IN ALL THE YEARS UNDER CONSIDERATION RELATES TO THE ALLOWABILITY OF EXPENDITURE ON THE SALARY AND ALLOWANCES RECEIVED AS MLA. AN IDENTICAL ISSUE HAS SINCE BEEN DECIDED BY THIS BENCH OF THE TRIBUNAL; VIDE ITS ORDER DATED 09 - 02 - 2010 IN ITA NO.381 TO 385/VIZAG/2008 IN THE CASE OF M.VENKATA SUBBIAH AND THE RELEVANT PORTIONS OF THE SAID ORDER ARE EXTRACTED HERE UNDER. 1 . THE SOLE CONTROVERSY AROSE IN THESE A PPEALS IS WITH REGARD TO THE TAXABILITY OF THE SALARY AND DIFFERENT ALLOWANCES UNDER VARIOUS HEADS RECEIVED BY THE MLAS (MEMBER OF LEGISLATIVE ASSEMBLIES). THE FACTS AVAILABLE ON RECORD ARE THAT THE ASSESSEES HAVE RECEIVED THE SALARY AND CONSTITUENCY ALLO WANCE, CONVEYANCE ALLOWANCE, TELEPHONE ALLOWANCE, CLERICAL ALLOWANCE, MEDICAL ALLOWANCE AND CONTINGENCY ALLOWANCE. THE ASSESSING OFFICER TAXED THE SALARY AND OTHER ALLOWANCES EXCEPT THE DAILY ALLOWANCE OVER AND ABOVE RS.24,000/ - IN ALL , WHICH WERE EXCLUDE D U/S 10(17) OF THE INCOME TAX ACT (HEREIN AFTER CALLED AS AN ACT) UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 2 CIT(A) WITH THE SUBMISSIONS THAT ONCE THE INCOME UNDER THE HEAD SALARY AND OTHER ALLOWANCES ARE TO B E ASSESSED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES , THE NECESSARY EXPENDITURES INCURRED IN EARNING THAT INCOME IS TO BE ALLOWED AND ONLY A NET PROFIT IS TO BE TAXED AND NOT THE ENTIRE RECEIPT. 2 . THE CIT(A) EXAMINED THE ISSUE IN THE LIGHT OF VAR IOUS JUDGEMENTS BUT WAS NOT CONVINCED WITH THE CONTENTIONS OF THE ASSESSEES AND HE CONFIRMED THE DISALLOWANCE A FTER HAVING OBSERVED THAT THE APPELLANT HAS FAILED TO ESTABLISH ANY NEXUS THAT SUCH EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OF EARNING SUCH INCOME. 3 . NOW THE ASSESSEE IS BEFORE US. DURING THE COURSE OF HEARING OF THE APPEAL , THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT AN MLA WHO IS ELECTED BY THE PUBLIC HAS GOT A BOUNDEN DUTY TO MOVE FROM PLACE TO PLACE IN HIS CONSTITUENCY, ENQUIRE THE DIFFICULTIES OF THE PEOPLE IN ORDER TO RECOMMEND THE NECESSARY HELP OR BENEFITS TO BE DONE TO THE PUBLIC IN HIS CONSTITUENCY, TO THE GOVERNMENT. IN THIS PROCESS, HE HAD TO INCUR LOT OF EXPENDIT URE ON ACCOUNT OF MOVING FROM ONE PLACE TO ANOTHER AND ALSO SPEAKING WITH VARIOUS IMPORTANT VILLAGE HEADS, GOVERNMENT OFFICERS IN HIS CONSTITUENCY. HE HAD TO INCUR TELEPHONE EXPENSES, CONVEYANCE EXPENSES AND ALSO IN ORDER TO MAKE CORRESPONDENCE WITH GOVER NMENT OFFICERS IN HIGH POSITIONS, THE MLA ALSO NEEDS A CLERICAL ASSISTANCE FOR HIS WORK. IN VIEW OF THESE FACTS THAT THE ASSESSEE HAD TO NECESSARILY INCUR SO MUCH OF EXPENDI TURE AND THE GOVERNMENT IS GRANTING VARIOUS ALLOWANCES TO MEET SUCH EXPENDITURE BY FIXING CERTAIN LIMITS. IT MEANS THAT GOVERNMENT WHILE GRANTING FIXED ALLOWANCES ITSELF IS AWARE THAT IMMEDIATE EXPENDITURE THAT ONE HAS TO INCUR FOR THE SAID PURPOSES THAT WERE MENTIONED ABOVE. IN FACT, IN MOST OF THE CASES, SUCH ALLOWANCES GRANTED BY T HE GOVERNMENT ARE NOT SUFFICIENT TO MEET THE SAID EXPENSES AND SOMETIMES OWN FUNDS BESIDES VARIOUS ALLOWANCES GRANTED BY THE GOVERNMENT TO BE UTILIZED TO KEEP UP THE REPUTATION AND FUTURE POSITION IN THE CONSTITUENCY OF AN MLA. IT MEANS THAT THE ASSESSEE HAD TO INCUR AND HAS INCURRED SO MUCH OF EXPENDITURE AND SUCH EXPENDITURE WAS BEING REIMBURSED IN THE FORM OF ALLOWANCE BY THE GOVERNMENT. 4 . THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT UNDER THE IDENTICAL CIRCUMSTANCES , WHEN REIMBURSEMENT TOW ARDS MEDICAL EXPENDITURE TO AN MLA WAS BROUGHT TO TAX BY TREATING IT AS A PERQUISITE BY THE ASSESSING AUTHORITY, THE HON'BLE HIGH COURT OF RAJASTHAN IN THE CASE OF CIT VS. SHIVCHARAN MATHUR 13 DTR (RAJ) 64 HAS HELD THAT THE MLA HAVING BEEN ELECTED AND NOT EMPLOYED U/S 15 IS NOT ATTRACTED IN RESPECT OF REMUNERATION RECEIVED BY HIM AND AS A NECESSARY COROLLARY, APPLICABILITY OF SECTION 17(2) CLAUSE 4 IS ALSO RULED OUT IN RESPECT OF REIMBURSEMENT OF MEDICAL EXPENSES. IT WAS SUBMITTED THAT THE ENTIRE ALLOWANCE S THAT WERE GRANTED TO ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 3 THE ASSESSEES HAVE BEEN SPENT AND SINCE ONLY PROFIT OR SURPLUS IS TO BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM BUSINESS/PROFIT OR UNDER THE HEAD INCOME FROM OTHER SOURCES, THE SURPLUS OUT OF THE ALLOWANCES ONLY SHOULD BE TAXE D . 5 . THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACED A RELIANCE UPON THE VARIOUS ORDERS PASSED BY THE TRIBUNAL ON TH E IMPUGNED ISSUE AND ALSO OF THE HIGH COURT , WHICH ARE AS UNDER: 1) SHRI B IJJAM PARTHASARATHI REDDY VS. ACIT ITA NO.1158/HYD/06 & 1159/HYD/06 DE CIDED ON 28.2.2008. 2) SHRI N. INDRASENA REDDY VS. ITO, ITA NO.218 & 219/HYD/05 DECIDED ON 31.1.2006. 3) SHRI P. K ISTA REDDY VS. DCIT ITA NO.377 & 378/HYD/2008 DECIDED ON 23.7.2009. 4) SHRI Y. YELLA REDDY VS. ITO 754 TO 758/HYD/2008 DECIDED ON 4.7.2008. 5) SHRI R. RA V INDRANATH REDDY VS. ITO 1136 TO 1139/HYD/2008 DECIDED ON 23.7.2009 6) JASWANT SINGH VS. ITO ITA NO.731/INDORE/2002 96 TTJ 660 7) CIT VS. MADDI SUDARS ANAM 174 ITR 659 6 . THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT IN THE AFORESAID ORDERS , THE TRIBUNA L HAS REPEATEDLY HELD FOLLOWING THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MADDI SUDARS ANAM (SUPRA) THAT THE MLA HAS TO NECESSARILY MAINTAIN HIS OFFICE AND ONLY FOR THAT PURPOSE, THE ALLOWANCE HAS BEEN GRANTED TO HIM FOR THE DAY TO D AY EXPENSES THAT WOULD CERTAINLY OCCUR FOR ANY LEGISLATURE. IT WAS ACCORDINGLY HELD THAT HE IS ENTITLED TO BENEFIT OF EXEMPTION U/S 10(14) OF THE I.T. ACT. 7 . THE LD. D.R. ON THE OTHER HAND HAS EMPHATICALLY ARGUED THAT ONLY THOSE ALLOWANCE GIVEN TO THE M LAS ARE EXEMPTED , WHICH ARE SPECIFICALLY MENTIONED IN SECTION 10(17) OF THE ACT. ACCORDING TO THE SECTION 10(17) OF THE ACT, DAILY ALLOWANCES RECEIVED BY THE MLAS ARE TO BE EXEMPTED FROM THE INCOME OF THE ASSESSEES. LATER ON, THE AMENDMENT WAS MADE BY TH E FINANCE ACT, 2006 W.E.F. 1.4.2007, ACCORDING TO WHICH CONSTITUENCY ALLOWANCE RECEIVED BY THE MLAS WAS ALSO EXEMPTED. MEANING THEREBY, THE LEGISLATURE IS QUITE CONSCIOUS ABOUT THE ALLOWANCES WITH REGARD TO WHICH EXEMPTION IS TO BE GRANTED. INITIALLY, T HEY ALLOWED THE EXEMPTION OF THE DAILY ALLOWANCES AND OTHER ALLOWANCES NOT EXCEEDING RS.2000/ - P.M. TO THE MLAS BUT AFTER RECEIVING REPRESENTATION FROM VARIOUS STATE GOVERNMENTS, THE PARLIAMENT HAS MADE THE NECESSARY AMENDMENTS BY INSERTING CLAUSE 3 W.E.F. 1.4.2007 A ND GRANTED THE EXEMPTION OF THE CONSTITUENCY ALLOWANCE GIVEN TO THE MLAS LIKE THE MPS. WHEN SPECIFIC PROVISION IS THERE TO GRANT THE EXEMPTION OF PARTICULAR TYPE OF ALLOWANCES, THE GENERAL PROVISION OF SECTION 10(14) CANNOT BE INVOKED. ACCORDI NGLY, HE PLACED HEAVY RELIANCE UPON THE ORDER OF THE CIT(A). ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 4 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND VARIOUS ORDERS/JUDGEMENTS REFERRED TO BY THE ASSESSEES. WE HAVE CAREFULLY EXAMINED THE VARIO US ORDERS OF THE TRIBUNAL PASSED ON THIS SUBJECT AND WE FIND THAT DIFFERENT BENCHES OF THE TRIBUNAL HAVE HELD IN ONE VOICE THAT THE SALARY GIVEN TO THE MLAS CANNOT BE ASSESSED UNDER THE HEAD SALARY. IT IS RATHER AN INCOME FROM OTHER SOURCES. THE ISSUE RE GARDING NATURE OF RECEIPT WAS EXAMINED BY THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SHIVCHARAN MATHUR (SUPRA) AND HAS CATEGORICALLY HELD THAT THE FUNDAMENTAL REQUIREMENT FOR ATTRACTING SECTION 15 IS THAT, THERE SHOULD BE A RELATIONSHIP OF EMPLOYER AN D EMPLOYEE WHETHER IN EXISTENCE OR IN THE PAST. OBVIOUSLY AND NECESSARILY IN THE VERY NATURE OF THINGS FOR BRINGING ABOUT SUCH RELATIONSHIP , THE ASSESSEE, BEING THE PERSON CONCERNED, EMPLOYED BY THE EMPLOYER AND HAS A NECESSARY COROLLARY, THE EMPLOYER SHO ULD HAVE RIGHT TO DISCHARGE OR TERMINATE THE EMPLOYEE. THE BASIC INGREDIENT IS MISSING IN THE CASE OF MLAS AND MPS AS THEY ARE NOT EMPLOYED BY ANYBODY RATHER THEY ARE ELECTED BY THE PUBLIC FORMING THEIR ELECTION CONSTITUENCIES AND IN CONSEQUENT UPON SUCH ELECTION THAT THEY ACQUIRE CONSTITUENCY POSITION AND DISCHARGE CONSTITUENCY FUNCTIONS AND OBLIGATIONS. MAY BE, THAT THEY RECEIVE REMUNERATIONS AFTER SWEARING IN BUT THAT CANNOT BE SAID TO BE THE SALARY WITHIN THE MEANING OF SECTION 15. THEREFORE, THE REM UNERATIONS RECEIVED BY THE MLAS & MPS CANNOT BE TAXE D UNDER THE HEAD INCOME FROM SALARY BUT CAN ONLY BE TAXE D UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, THERE IS NO CONTROVERSY IN THIS REGARD AND FOLLOWING THE AFORESAID ORDERS, WE HOLD THAT IN T HE INSTANT CASE, THE REVENUE HAS RIGHTLY TREATED THE REMUNERATION RECEIVED BY THE ASSESSEE MLAS UNDER THE HEAD INCOME FROM OTHER SOURCES . 9 . WITH REGARD TO ANOTHER ISSUE WHETHER THE PROVISIONS OF SECTION 10(14) OF THE ACT CAN BE INVOKED FOR OTHER ALLOWA NCES GIVEN TO THE MLAS IN THE INSTANT CASE, WE FIND THAT THE VARIOUS BENCHES OF THE TRIBUNALS IN THE AFORESAID CASES HAVE CATEGORICALLY HELD IN ONE STREAM THAT ASSESSEE IS ENTITLED TO THE BENEFIT OF EXEMPTION U/S 10(14) OF THE I.T. ACT FOLLOWING THE JUDGEM ENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MADDI SUDARS ANAM (SUPRA) IN WHICH IT HAS BEEN HELD THAT SECTION 10 ( 14 ) PROVIDES THAT ANY SPECIAL ALLOWANCE OR BENEFIT SPECIFICALLY GRANTED TO MEET EXPENSES WHOLLY , NECESSARILY AND EXCLUSIVELY INC URRED IN THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT , TO THE EXTENT TO WHICH SUCH EXPENSES ARE ACTUALLY INCURRED FOR THAT PURPOSE, WOULD BE EXEMPT . T HEIR LORDSHIP FURTHER IN THAT CASE HELD THAT THE EXTENT OF EXPENSES NOT ACTUALLY IN CURRED FOR THE PURPOSE WOULD NOT EARN EXEMPTION. THE LANGUAGE OF SECTION 10(14) WOULD CLEARLY SHOW THAT ANY SPECIAL ALLOWANCE OR BENEFIT SPECIFICALLY GRANTED TO MEET EXPENSES WHOLLY, NECESSARILY AND EXCLUSIVELY INCURRED IN THE PERFORMANCE OF DUTIES OF AN OFFICE OR AN EMPLOYMENT OF PROFIT ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 5 WOULD BE EXEMPT. THE SECTION 10(14) DOES NOT USE THE EXPRESSION OFFICE OF PROFIT . T HE EXPRESSION USED IS OFFICE OR EMPLOYMENT OF PROFIT . THE EXPRESSION OF PROFIT QUALIFIES ONLY EMPLOYMENT AND DOES NOT QUALIFY OFFICE . IT IS ENOUGH IF A PERSON IS HOLDING AN OFFICE AND FOR THE PURPOSE OF PERFORMING THE DUTIES ASSOCIATED WITH HIS OFFICE IS GRANTED AN ALLOWANCE OR BENEFIT SPECIFICALLY TO MEET THE EXPENSES. IN THE CASE OF AN MLA, HE MAY NOT BE HOLDING AN EMPLOYME NT OF PROFIT BUT HE IS CERTAINLY HOLDING AN OFFICE OF MLA AND AS SUCH WHATEVER ALLOWANCES OR BENEFIT GRANTED TO IT TO MEET THE PARTICULAR EXPENSES , HE IS ENTITLED FOR EXEMPTION UPTO THE APPLICABILITY OF SECTION 10(14) OF THE I.T. ACT TO THE ALLOWANCES GRAN TED TO THE ASSESSEE MLAS. THERE IS NO DIFFERENCE IN ANY OF THE AFORESAID ORDERS OF THE TRIBUNALS WITH REGARD TO APPLICABILITY OF SECTION 10(14) OF THE ACT . 1 0 . THE ONLY DIFFERENCE OF THE OPINION IS WITH REGARD TO THE ALLOWABILITY OF THE EXPENSES. IN T HE CASE OF SHRI N. INDRASENA REDDY (SUPRA), THE TRIBUNAL HAS HELD THAT THE MLA IS HOLDING AN OFFICE THOUGH NOT O N OFFICE OF PROFIT AND SECTION 10(14) OF THE ACT WOULD APPLY TO HIS CASE. HOWEVER, THE EXPENSES WHICH ARE EXEMPT ARE REQUIRED TO BE PRESCRIBED BY THE COMPETENT AUTHORITIES AND THE ASSESSEE IS REQUIRED TO FILE THE EVIDENCE THAT SUCH EXPENDITURE HAS ACTUALLY BEEN INCURRED BY HIM AND FOR THAT PURPOSE, THE ALLOWANCES AND ITS EXPENSES ARE TO BE GOVERNED BY RULE 2BB (1) OF THE I.T. RULES. IN ORDER TO ESTABLISH THAT THE ALLOWANCES GRANTED TO THE ASSESSEES WERE SPENT FOR A PARTICULAR PURPOSE TO WHICH IT WAS GRANTED, THE ASSESSEE IS REQUIRED TO FILE SOME EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER. IN THAT CASE, SINCE THE ASSESSEE DID NOT FILE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THE EXPENDITURE INCURRED, THE TRIBUNAL HELD THAT ASSESSEE WAS NOT ENTITLED TO THE EXEMPTION U/S 10(14 ) OF THE ACT OF TH OSE EXPENSES WHICH ARE COVERED AS PER RULE 2BB (1) OF THE I.T. RULES. THIS ORDER WAS FOLLOWED BY A NOTHER BENCH IN THE CASE OF SHRI B. PARTHASARATHI REDDY VS. ACIT (SUPRA) BUT WHILE ALLOWING THE ENTIRE CLAIM, THE BENCH HAS NOT DISCUSSED THE PROVISIONS OF RULE 2BB AS DISCUSSED BY THE TRIBUNAL IN ITS EARLIER ORDER IN THE CASE OF N. INDRASENA REDDY AND THE TRIBUNAL HAS DIRECTED THE A.O. TO ALLOW DEDUCTIONS IN RESPECT OF THE ALL ALLOWANCES GIVEN TO THE ASSESSEES. THEREAFTER OTHER ORDER OF THE SAME BENCH WAS PASSED IN THE CASE OF SHRI P. KISTA REDDY (SUPRA) IN WHICH THE TRIBUNAL HAS FOLLOWED THE ORDER OF ITS BENCH IN THE CASE OF B. PARTHASARATHI REDDY AND ALLOWED THE ENTIRE CLAIM OF ALLOWANCES GIVEN TO THE ASSESSEES WITHOUT REALIZING AS TO WHY THE PROVISIONS OF RULE 2BB ARE NOT APPLICABLE WHILE GRANTING THE EXEMPTION U/S 10(14). THE SIMILAR WAS THE POSITION IN THE CASE OF R. RAVINDRANATH REDDY IN WHICH THE SMC BENCH HAS ALSO FOLLOWED THE CASE OF B. PARTHASARATHI REDDY. WHEREAS, THE OTHER SMC BENCH OF THE TRIBUNAL IN THE CASE OF Y. YELLA REDDY VS. ITO (SUPRA) HAS DIRECTED THE A.O. TO VERIFY THE GENUINENESS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE IN CONNECTION WITH THE ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 6 PERFORMANCE OF DUTIES OF HIS OFFICE AS MLA AND TO ALLOW DEDUCTIONS OF EXPENDITURE AFTER DUE VERIFICATIONS. 1 1 . NOW THE QUESTION POSED BEFORE US IN THE LIGHT OF THESE AFORESAID ORDERS OF THE T RIBUNAL WHETHER THE COMPLIANCE OF RULE 2BB IS IMPOSED WHILE ALLOWING AN EXEMPTION U/S 10(14) OF THE I.T. ACT. IN THIS REGARD, WE EXTRACT THE PROVISIONS OF RULE 2BB AS UNDER: - 2BB (1) FOR THE PURPOSES OF SUB - CLAUSE (I) OF CLAUSE (14) OF SECTION 10 PRESCR IBED ALLOWANCES, BY WHATEVER NAME CALLED, SHALL BE THE FOLLOWING, NAMELY: - (A) ANY ALLOWANCE GRANTED TO MEET THE COST OF TRAVEL ON TOUR OR ON TRANSFER. (B) A NY ALLOWANCE, WHETHER, GRANTED ON TOUR OR FOR THE PERIOD OF JOURNEY IN CONNECTION WITH TRANSFER, TO MEET TH E ORDINARY DAILY CHARGES INCURRED BY AN EMPLOYEE ON ACCOUNT OF ABSENCE FROM HIS NORMAL PLACE OF DUTY; (C) A NY ALLOWANCE GRANTED TO MEET THE EXPENDITURE INCURRED ON CONVEYANCE IN PERFORMANCE OF DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT: PROVIDED THAT FREE CONVEYANCE IS NOT PROVIDED BY THE EMPLOYER. (D) ANY ALLOWANCE GRANTED TO MEET THE EXPENDITURE INCURRED ON A HELPER WHERE SUCH HELPER IS ENGAGED FOR THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT; (E) ANY ALLOWANCE GRANTED FOR ENCO URAGING THE ACADEMIC, RESEARCH AND TRAINING PURSUITS IN EDUCATIONAL AND RESEARCH INSTITUTIONS. (F) ANY ALLOWANCES GRANTED TO MEET THE EXPENDITURE INCURRED ON THE PURCHASE OR MAINTENANCE OF UNIFORM FOR WEAR DURING THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR E MPLOYMENT OF PROFIT. EXPLANATION: FOR THE PURPOSE OF CLAUSE (A), ALLOWANCE GRANTED TO MEET THE COST OF TRAVEL ON TRANSFER INCLUDES ANY SUM PAID IN CONNECTION WITH TRANSFER, PACKING AND TRANSPORTATION OF PERSONAL EFFECTS ON SUCH TRANSFER. 1 2 . IN ORDER TO ASCERTAIN WHETHER THE SPECIAL ALLOWANCES OR THE BENEFITS OTHER THAN THE PERQUISITES , FOR MS PART OF THE TOTAL INCOME DEFINED IN SECTION 2 ( 24 ) OF THE ACT , WE HAVE TO CAREFULLY EXAMINE THE PROVISIONS OF SEC.2(24) OF THE ACT. SEC.2(24) OF THE ACT DEFINES THE INCOME OF THE ASSESSEE AND IT INCLUD ES DIFFERENT TYPE OF RECEIPTS. AS PER CL A USE (IIIA) OF THIS DEFINITION , INCOME INCLUDES ANY SPECIAL ALLOWANCE OR BENEFIT OTHER THAN THE PERQUI SITES INCLUDED UNDER SUB - CLAUSE (III) OF THIS SUB - SECTION SPECIFICALLY GRANTE D TO THE ASSESSEE TO MEET EXPENSES WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT. IN ORDER TO BRING THE SPECIAL ALLOWANCES WITHIN THE FOLD OF INCOME, THE SUB CLAUSE (IIIA) WAS INSERTED BY THE DI RECT TAX LAWS AMENDMENT ACT, 1989 RETROSPECTIVELY W.E.F. 1 ST APRIL, 1962. THIS ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 7 ALLOWANCES WHICH THE LEGISLATURE ENTITLED TO SHOWER THE BENEFICIAL TREATMENT MAY BE SEEN IN SECTION 10(14). THUS ALL THOSE SPECIAL ALLOWANCES OTHER THAN THOSE SPECIFICALLY EXE MPT WOULD BE TAXE D AS AN INCOME OF THE ASSESSEES. WE HAVE ALSO EXAMINED THE PROVISIONS OF SECTION 10(14) AND RULE 2BB OF THE I.T. R ULES AND WE FIND THAT RULE 2BB IS SUPPLEMENT TO SECTION 10(14) OF THE ACT AND IT PUTS A CAP ON THE QUANTUM OF THE ALLOWANCE OR BENEFIT GRANTED TO THE ASSESSEES. IN SECTION 10( 14 ) A GENERAL REFERENCE WAS MADE WITH REGARD TO THE SPECIAL ALLOWANCES BUT THE NATURE OF THE ALLOWANCES WERE NOT SPELLED OUT IN THAT SECTION. THIS LEFT OVER WORK IS DONE BY RULE 2BB IN WHICH THE SPECIAL ALLOWANCES WERE IDENTIFIED AND THEIR QUANTUM OF EXEMPTION FROM TAX WAS ALSO FIXED TO THE EXTENT AS NOTIFIED IN THE NOTIFICATION. THESE EXEMPTIONS IS IN RESPECT OF AFORESAID SPECIAL ALLOWANCES TO THE EXTENT TO WHICH THE SAID EXPENSES ARE ACTUALLY INCURRED IN THAT PURPOSE. 1 3 . THE SUB CLAUSE 1 OF SECTION 10(14) GRANTS EXEMPTION IN RESPECT OF ANY SPECIAL ALLOWANCE OR BENEFIT, NOT BEING THE NATURE OF PERQUISITE WITHIN THE MEANING OF CLAUSE ( 2 ) OF SECTION 17, SPECIFICALLY GRANTED TO MEET THE EXPENSES WHOLLY, NECESSARILY AND EXCLUSIVELY INCURRED IN THE PERFORMANCE OF DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT AS MAY BE PRESCRIBED TO THE EXTENT TO WHICH SUCH EXPENSES ARE ACTUALLY INCURRED FOR THAT PURPOSE. THE SUB CLAUSE (II) GRANTS EXEMPTION IN RESPECT OF AN Y ALLOWANCE GRANTED TO THE ASSESSEES EITHER TO MEET HIS PERSONAL EXPENSES AT THE PLACE WHERE THE DUTIES OF HIS OFFICE OR EMPLOYMENT OF PROFIT OR ORDINARILY PERFORMED BY HIM OR THE PLACE WHERE HE ORDINARILY RESIDES OR TO COMPENSATE THE ASSESSEES FOR THE INC REASED COST OF LIVING. THE ALLOWANCES SHALL BE ONE WHICH IS PRESCRIBED AND THE EXEMPTION SHALL BE TO THE EXTENT AS MAY BE PRESCRIBED. RULE 2BB HAS PRESCRIBED THE ALLOWANCE AS WELL THE AMOUNT EXEMPT U/S 10(14)(II). FROM 1 ST APRIL, 1989 TO 30 TH JUNE, 1995 THE SAID ALLOWANCES HAD TO BE ONE SPECIFIED BY THE CENTRAL GOVERNMENT AND QUANTUM OF EXEMPTION WAS TO THE EXTENT SPECIFIED IN THE CONCERNED NOTIFICATION. SECTION 14 DEALS WITH 2 TYPES OF ALLOWANCES (1) SUCH ALLOWANCES OR BENEFIT NOT BEING THE NATURE OF THE PERQUISITE WITHIN THE MEANING OF CLAUSE ( 2 ) OF SECTION 17 SPECIFICALLY GRANTED TO MEET EXPENSES WHOLLY, NECESSARILY AND EXCLUSIVELY INCURRED IN THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR AN EMPLOYMENT OF PROFIT AS MAY BE PRESCRIBED TO THE EXTENT TO WHICH SUCH EXPENSES ARE ACTUALLY INCURRED FOR THAT PURPOSE. (2) ANY SUCH ALLOWANCES GRANTED TO THE ASSESSEES EITHER TO MEET HIS PERSONAL EXPENSES AT THE PLACE WHERE THE DUTIES OF HIS OFFICE OR EMPLOYMENT OF PROFIT ARE ORDINARILY PERFORMED BY HIM OR AT THE PLACE WHERE HE ORDINARILY RESIDES OR TO COMPENSATE HIM FOR THE INCREASED COST OF LIVING. THE SPECIAL ALLOWANCES OR THE BENEFITS PRESCRIBED IN CLAUSE 1 ARE TO BE GOVERNED BY SUB RULE 1 OF RULE 2BB IN WHICH THE SPECIAL ALLOWANCES WERE IDENTIFIED AND ARE ALS O ALLOWED TO BE EXEMPTED TO THE EXTENT TO MEET THE EXPENDITURES INCURRED FOR THAT PURPOSE. WHEREAS SUB CLAUSE ( 2 ) OF CLAUSE 14 OF SECTION 10 IS GOVERNED BY SUB RULE ( 2 ) OF ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 8 RULE 2BB IN WHICH THE ALLOWANCES WERE ALSO IDENTIFIED BUT THEY WERE ALLOWED TO BE E XEMPTED UPTO A PARTICULAR LIMIT. AS PER SUB RULE ( 2 ) THE EXEMPTION OF ALLOWANCE IS LIMITED , IRRESPECTIVE OF THE FACT THAT THE ENTIRE ALLOWANCE WAS SPENT OR NOT FOR THE PURPOSE TO WHICH IT WAS GRANTED. 1 4 . IN THE CASE OF COAL MINES OFFICERS ASSOCIATION OF INDIA VS. UOI AND OTHERS 181 ITR 346 MP IT WAS HELD THAT ANY PARTICULAR ALLOWANCE UNLESS IT IS NOTIFIED BY THE CENTRAL GOVERNMENT FOR ITS EXEMPTION U/S 10(14) READ WITH RULE 2BB IT CANNOT BE ALLOWED TO BE EXEMPTED. MEANING THEREBY THAT THE ALLOWANCE SH ALL BE ONE WHICH IS PRESCRIBED AND THE EXEMPTION SHALL BE TO THE EXTENT AS MAY BE PRESCRIBED . RULE 2BB HAS PRESCRIBED THE ALLOWANCES AS WELL AS THE AMOUNT EXEMPT UNDER SECTION 10(14)(II) [FROM 1 ST APRIL, 1989 TO 30 TH JUNE, 1995, THE SAID ALLOWANCE HAD TO BE ONE SPECIFIED BY THE CENTRAL GOVT. AND THE QUANTUM OF EXEMPTION WAS TO THE EXTENT SPECIFIED IN THE CONCERNED NOTIFICATION . ] IT HAS ALSO BEEN CLARIFIED THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS THAT IN ORDER TO AVAIL THE EXEMPTION UNDER THIS CLAUSE, THE A SSESSEE HAS TO PROVE THAT THE EXPENDITURE IN RESPECT OF WHICH SPECIAL ALLOWANCE OR BENEFIT WAS GRANTED, HAS BEEN INCURRED WHOLLY, NECESSARILY AND EXCLUSIVELY IN THE PERFORMANCE OF HIS DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT. THE REQUIREMENT OF `WHOLLY , NECESSARILY AND EXCLUSIVELY IS CUMULATIVE AND NOT ALTERNATIVE. ASSESSEE MUST ESTABLISH THAT HE IS REQUIRED TO SPEND SUCH SPECIAL ALLOWANCE OR BENEFIT NOT ONLY WHOLLY BUT ALSO NECESSARILY AND EXCLUSIVELY IN THE PERFORMANCE OF HIS DUTIES. IN THE CASE OF J.G. MANKED VS. CIT 55ITR 448 (GUJ.) ASSESSEE WHO WAS PRACTI S ING CHARTERED ACCOUNTANT WAS APPOINTED AS A PART TIME PROFESSOR IN A COLLEGE SITUATED AT ANOTHER PLACE. HE WAS PAID A CERTAIN MONTHLY SALARY INCLUDING TRAVELLING ALLOWANCES AND ALL OTHER ALLO WANCES. THE GUJARAT HIGH COURT HELD THAT ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION U/S 4(3)(VI) OF 1922 ACT (CORRESPONDING TO SECTION 10(14) OF THE I.T. ACT, 1961) , AS IT FELT THAT THE SAID TRAVELLING ALLOWANCE WAS NOT A SPECIAL ALLOWANCE OR BENEFIT GR ANTED TO THE ASSESSEES, MUCH LESS SPECIFICALLY GRANTED TO MEET THE EXPENSES OF TRAVELLING. 1 5 . WE THEREFORE OF THE VIEW THAT WHILE DEALING WITH THE ISSUE OF SPECIAL ALLOWANCES GIVEN TO THE ASSESSEES ONE HAS TO EXAMINE THE PROVISION OF SECTION 2(24) & 10(1 4) OF THE I.T. ACT AND RULE 2BB OF THE I.T. RULES . A S PER SECTION 2(24) ALL ALLOWANCES FORMS PART OF THE INCOME OF THE ASSESSEES. SECTION 10(14) DEALS WITH THE EXEMPTION OF CERTAIN SPECIAL ALLOWANCES AND R ULE 2BB IDENTIFY THE ALLOWANCES AND THEIR LIMIT O F EXEMPTION FROM TAX . 1 6 . SO FAR AS PROOF OF ACTUAL EXPENDITURE OF THE ALLOWANCES ARE CONCERNED, WE HAVE EXAMINED THE VARIOUS JUDGEMENTS INCLUDING THE JUDGEMENT OF THE APEX COURT IN THE CASE OF CIT VS. TEJAJI FARASHRAN KARAWALA LTD. 67 ITR 19 9 5 (SC) IN WH ICH IT HAS BEEN OBSERVED THAT TO QUALIFY THE EXEMPTION THE ALLOWANCE MUST BE ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 9 GRANTED TO MEET EXPENSES INCURRED OR TO BE INCURRED WHOLLY, AND NECESSARILY IN THE PERFORMANCE OF DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT. THE PURPOSE FOR WHICH THE ALLOWANCE IS GRANTED IS ALONE NOT DETERMINATIVE OF CLAIM OF EXEMPTION. THE INTENTION OF THE FRAMERS OF THE ACT WAS TO GRANT EXEMPTION IN RESPECT OF AMOUNTS RECEIVED BY THE ASSESSEES NOT FOR HIS OWN BENEFIT BUT FOR THE SPECIFIED PURPOSE OF MEETING THE EXPENSES WHOL LY AND NECESSARILY TO INCUR OR TO BE INCURRED FOR THE PERFORMANCE OF THE DUTIES. THEREFORE, THE ALLOWANCES GRANTED TO MEET THE EXPENSES WHOLLY AND NECESSARILY INCURRED OR TO BE INCURRED FOR THE PERFORMANCE OF THE DUTIES OF THE OFFICE OR EMPLOYMENT OF THE GRANTEE ALONE QUALIFIES FOR EXEMPTION UNDER THE ACT AND ANY SURPLUS REMAINING IN THE HANDS OF THE GRANTEE AFTER MEETING THE EXPENSES DOES NOT BEAR THE CHARACTER OF THE ALLOWANCES FOR THE MEETING EXPENSES BUT FOR PERFORMING THEIR DUTIES OF THE OFFICE FOR EM PLOYMENT. THIS WOULD BE SO EVEN IF THE EMPLOYER HAS DISABLED HIMSELF FROM DEMANDING REFUND OF THE AMOUNT NOT EXPENDED FOR MEETING THE EXPENSES INCURRED OR TO BE INCURRED IN THE PERFORMANCE OF DUTIES OF OFFICE OR EMPLOYMENT OF PROFIT AND THE SURPLUS REMAINI NG IN THE HANDS OF THE GRANTEE ACQUIRES FOR THE PURPOSE OF INCOME TAX ACT THE CHARACTER OF THE ADDITIONAL REMUNERATION. MEANING THEREBY, THE ONUS IS UPON THE ASSESSEE TO PLACE RELEVANT EVIDENCE IN ORDER TO PROVE THAT THE ALLOWANCES GIVEN TO HIM ARE SPENT FOR THE PURPOSE TO WHICH IT WAS GRANTED. 1 7 . TURNING TO THE FACTS OF THE CASE, WE FIND THAT THE ASSESSEE WAS GRANTED THE CONSTITUENCY ALLOWANCE, CONVEYANCE ALLOWANCE, TELEPHONE ALLOWANCE, CLERICAL ALLOWANCE, MEDICAL ALLOWANCE AND CONTINGENCY ALLOWANCE BES IDES SALARY. DURING THE RELEVANT ASSESSMENT YEAR AS PER SECTION 10(17) THE MLAS ARE ENTITLED FOR EXEMPTION OF THE DAILY ALLOWANCES AND ALL OTHER ALLOWANCES NOT EXCEEDING RS.2000/ - P.M. T HOUGH W.E.F 1.4.2007 MLAS ARE ALSO ENTITLED FOR EXEMPTION OF ANY CO NSTITUENCY ALLOWANCE RECEIVED BY THEM BY VIRTUE OF AN AMENDMENT IN SECTION 10(17) BUT IT WAS WITH THE PROSPECTIVE EFFECT AND IN THE IMPUGNED ASSESSMENT YEARS THE ASSESSEE CANNOT TAKE THE BENEFIT OF IT AND ALL OTHER ALLOWANCES ARE LIMITED TO RS.2000/ - P.M. ONLY. THOUGH IN SECTION 10(17) THE LEGISLATURE HAS RESTRICTED THE EXEMPTION OF ALL OTHER ALLOWANCES UPTO RS.2000/ - P.M. YET THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS IT HAS BEEN HELD THAT THE MLAS ARE ENTITLED TO TAKE THE BENEFIT OF SECTION 10(14) ALSO. W E THEREFORE OF THE VIEW THAT A CCORDING TO THE RULE 2BB READ WITH SECTION 10(14) OF THE ACT , ONLY THE CONVEYANCE ALLOWANCE OR THE CLERICAL ALLOWANCE ARE REQUIRED TO BE EXEMPTED, SUBJECT TO PROOF THAT IT WAS INCURRED IN PERFORMANCE OF DUTIES OF AN OFFICE. S O FAR AS THE TELEPHONE ALLOWANCE AND CONSTITUENCY ALLOWANCE ARE CONCERNED , WE DO NOT FIND ANY SPECIFIC CLAUSE IN RULE 2BB (1) OF THE I.T. RULES. THUS THESE ALLOWANCES CANNOT BE ALLOWED U/S 10(14) OF THE I.T. ACT. WITH REGARD TO THE MEDICAL ALLOWANCES THE COMPLETE FACTS ARE NOT AVAILABLE ON RECORD WHETHER IT WAS A REIMBURSEMENT OR IT WAS AN ALLOWANCE LIKE OTHER ALLOWANCES ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 10 GRANTED TO THE MLA. IF IT IS A REIMBURSEMENT OF THE MEDICAL EXPENDITURE, IT CAN BE ALLOWED IN THE LIGHT OF THE JUDGEMENT OF THE RAJASTH AN HIGH COURT IN THE CASE OF CIT VS. SHIVCHARAN MATHUR (SUPRA). OTHERWISE NO DEDUCTION CAN BE ALLOWED AS IT DOES NOT FIND PLACE IN RULE 2BB(1) OF THE IT RULES. 1 8 . WE DO NOT AGREE WITH THE PROPOSITION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALL TYPE OF ALLOWANCES GRANTED TO THE ASSESSEE ARE ELIGIBLE FOR EXEMPTION U/S 10(14) OF ACT. I F THAT BE THE CASE, THERE WAS NO NEED OF PROVIDING A SEPARATE SUB SECTION 17 IN SECTION 10 FOR ALLOWING CERTAIN OTHER ALLOWANCES ; LIKE DAILY ALLOWANCE TO MLAS FOR ITS EXEMPT ION FROM THE TOTAL INCOME OF THE ASSESSEE. MEANING THEREBY, BOTH THE PROVISIONS RELATING TO THE EXEMPTION OF THE ALLOWANCES I.E. 10(14) & 10(17) ARE TO BE READ TOGETHER AND IN CASE OF MLAS & MPS THEY ARE ENTITLED FOR THE EXEMPTION OF ALLOWANCES UNDER BOTH THE CLAUSES SIMULTANEOUSLY. IN THE CASE OF SECTION 10(17), THE MLAS & MPS ARE GRANTED A LUMPSUM EXEMPTION OF PARTICULAR ALLOWANCE WITHOUT PRODUCING ANY EVIDENCE WITH REGARD TO ITS EXPENDITURE, WHEREAS U/S 10(14), THE ALLOWANCES ARE ONLY ALLOWED TO BE EXE MPTED SUBJECT TO PROOF THAT IT WAS INCURRED TO MEET A PARTICULAR PURPOSE. 19 . WE HAVE ALSO GONE THROUGH THE HISTORY OF PROVISIONS OF SECTION 10(17) OF THE ACT AND WE FIND THAT AT THE TIME OF ENACTMENT OF THE INCOME TAX ACT, 1961 , ONLY DAILY ALLOWANCES R ECEIVED BY THE MPS OR THE MLAS OR ANY MEMBER OF THE COMMITTEE THERE OF ARE EXEMPTED FROM THE TOTAL INCOME. THE SCOPE OF THE EXEMPTION WAS WIDENED TIME TO TIME AND BY TAXATION LAWS AMENDMENT AND MISCELLANEOUS PROVISIONS ACT, 1986 W.E.F. 1 ST APRIL 1986, TH E AMENDMENT WAS MADE AND BESIDES THE DAILY ALLOWANCES, ALL OTHER ALLOWANCES UPTO RS.1250/ - P.M. IN AGGREGATE IN THE CASE OF MP AND RS.600/ - P.M. IN THE CASE OF MLA WERE EXEMPTED FROM TAX. F URTHER AMENDMENT WAS MADE IN THIS CLAUSE BY THE FINANCE ACT, 1997 AND THE AMOUNT OF RS.600/ - P.M. IN CASE OF MLAS WAS INCREASED TO RS.2000/ - P.M. THEREAFTER, FURTHER AMENDMENT WAS ALSO MADE BY THE FINANCE ACT, 2006 AND LIKE THE MPS, THE CONSTITUENCY ALLOWANCE RECEIVED BY THE MLAS WAS ALSO MADE EXEMPTIVE FROM THE TOTAL I NCOME OF THE ASSESSEES. AMENDMENT BY FINANCE ACT, 2006 WAS BROUGHT IN ORDER TO BRING THE UNIFORMITY OF CONSTITUENCY ALLOWANCES ALLOWED BY DIFFERENT STATES THROUGH THEIR INDEPENDENT NOTIFICATIONS WITH RESPECT TO OTHER ALLOWANCES BY AMENDING CLAUSE 3 OF SEC TION 10(17) AND THE LEGISLATURE HAS ALLOWED THE EXEMPTION OF THE ENTIRE CONSTITUENCY ALLOWANCE GRANTED TO MLAS. 2 0 . FROM A CAREFUL STUDY OF THE AMENDMENTS BROUGHT TIME TO TIME IN SECTION 10(17) OF THE ACT, WE ARE OF THE VIEW THAT LEGISLATURE HAS BEEN QUI TE CONSCIOUS ABOUT THE ALLOWANCES GRANTED TO THE MLAS OR THE MPS AND TIME TO TIME THEY ARE BRINGING ENACTMENTS TO GRANT EXEMPTION OF PARTICULAR TYPE OF ALLOWANCES FROM THE TOTAL INCOME OF THE MLAS OR MPS. HAD IT BEEN A CASE THAT ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 11 FOR ALL ALLOWANCES SECTION 10(14) CAN BE INVOKED SUBJECT TO PROOF OF THE EXPENDITURE TO BE INCURRED IN RESPECT OF TH AT PURPOSE TO WHICH THE ALLOWANCES ARE GIVEN , THERE WOULD BE NO NEED TO MAKE A NECESSARY AMENDMENT TIME TO TIME IN SECTION 10(17). WE THEREFORE, OF THE VIEW THAT WHI LE DEALING WITH THE ISSUE OF SPECIAL ALLOWANCES GRANTED TO THE MLAS OR MPS ONE HAS TO KEEP IN MIND BOTH THE PROVISIONS OF SECTION 10(17) AND 10(14) OF THE ACT AND ONLY THOSE ALLOWANCES ARE TO BE EXEMPTED FROM THE TOTAL INCOME OF THE ASSESSEES WHICH ARE SPE CIFIED IN THESE SECTIONS OR RULE 2BB OF THE I.T. RULES . UNDER SECTION 10(17), THE LEGISLATURE HAS PRESCRIBED A PARTICULAR LIMIT UPTO WHICH THE ALLOWANCES ARE TO BE EXEMPTED FROM THE TOTAL INCOME OF THE ASSESSEES BUT SECTION 10(14) IS TO BE READ WITH RULE 2BB OF THE I.T. RULES AND ONLY THOSE ALLOWANCES ARE TO BE ALLOWED TO BE EXEMPTED FROM THE TOTAL INCOME OF THE ASSESSEES WHICH ARE SPECIFICALLY MENTIONED IN RULE 2BB SUBJECT TO PROOF OF ITS BEING SPENT FOR THE PURPOSE TO WHICH IT IS RECEIVED OR GRANTED. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF A.O. WITH A DIRECTION TO RE - EXAMINE THE ISSUE AND GRANT AN EXEMPTION OF THE CONVEYANCE ALLOWANCE AND THE CLERICAL ALLOWANCE AFTER MAKING NECESSARY VERIFICATION OF THE EXPEN DITURE INCURRED FOR THE SAID PURPOSE. REST OF THE ALLOWANCES I.E. TELEPHONE ALL OWANCE, CONSTITUENCY ALLOWANCE AND CONTINGENCY ALLOWANCE DO NOT FALL EITHER IN THE PURVIEW OF SECTION 10(14) OR 10(17) AND THEY CANNOT BE ALLOWED TO BE EXEMPTED FROM THE TOTAL INCOME OF THE ASSESSEES. SO FAR AS MEDICAL ALLOWANCES ARE CONCERNED, THE A.O. SHOULD VERIFY THE NATURE OF THESE ALLOWANCES. IF IT IS A REIMBURSEMENT OF THE MEDICAL EXPENSES INCURRED BY THE MLA, IT MAY BE ALLOWED IN THE LIGHT OF THE JUDGEMENT OF THE RAJAS THAN HIGH COURT IN THE CASE OF CIT VS. SHIVCHARAN MATHUR. OTHERWISE, NO EXEMPTION CAN BE ALLOWED AS IT DOES NOT FALL EITHER IN THE PURVIEW OF SECTION 10(14) AND 10(17) OF THE I.T. ACT. ACCORDINGLY, THESE APPEALS ARE DISPOSED OFF. 2.1 BOTH THE PARTIE S AGREED THAT TH S ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION OF THE DEDUCTION OF EXPENSES IN ACCORDANCE WITH THE DECISION OF THE TRIBUNAL REFERRED (SUPRA). ACC ORDINGLY THE COMMON ISSUE RELATING TO THE ALLOWABILITY OF EXP ENSES FROM THE MLA SALARY AND ALLOWANCES IN ALL THE YEARS ARE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE GIVEN NECESSARY OPPORTUNITY OF BEING HEARD. 3. THE NEXT ISSUE WHICH IS COMMON IN ALL THE YEARS RELATES TO THE ADDITION MADE TOWARDS LOW DRAWINGS. IN ALL THE FIVE YEARS, THE ASSESSING OFFICER HAS MADE ADDITION OF RS.84,000/ - IN EACH OF THE YEARS AFTER GIVING CREDIT F O R THE ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 12 DRAWINGS SHOWN BY THE ASSESSEE AND ALSO FOR THE CONTRIBUTION MADE BY HER MOT HER IN LAW . THE LEARNED CIT(A) CONFIRMED THE ADDITION IN ALL THE YEARS. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 3.1 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE NOTICE THAT THE ASSESSING OFFICER HAS ESTIMATED THE DOMESTIC EXPENDITURE AT RS.1,68,500/ - FOR THE ASSESSMENT YEAR 2000 - 01. THE ASSESSING OFFICER GAVE CREDIT OF RS.24,500/ - , BEING THE AMOUNT DRAWN BY THE ASSESSEE AND ALSO RS.60,000/ - WHICH WAS CLAIMED TO HAVE BEEN RECEIVED FROM HER MOTHER IN LAW. ACCORDINGLY THE BALANCE AMOUNT OF RS.84,000/ - WAS ADDED TOWARDS LOW DRAWINGS. IN THE SIMILAR MANNER, THE ASSESSING OFFICER HAS ESTIMATED THE DOMESTIC EXPENDITURE AND HAS GIVEN CREDIT FOR HER DRAWINGS AND FOR CONTRIBUTION RECEIVED FROM HER MOTHER IN LAW. THE LEARNED CIT(A) HAS NOTICED TH AT THE FAMILY OF THE ASSESSEE CONSISTED OF SIX MEMBERS AND THE ASSESSING OFFICER HAS ALREADY GIVEN CREDIT TOWARDS THE CONTRIBUTION MADE BY THE MOTHER IN LAW OF THE ASSESSEE. WE HAVE CAREFULLY PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT THERE IS NO MAT ERIAL , WHICH WAS BROUGHT BY THE ASSESSEE, TO SUGGEST THAT THE ESTIMATE MADE BY THE ASSESSING OFFICER TOWARDS DOMESTIC EXPENDITURE IS ON THE HIGHER SIDE . THE ASSESSING OFFICER HAS DULY GIVEN CREDIT FOR THE AVAILABLE SOURCES. HENCE, WE DO NOT FIND IT NECESS ARY TO INTERFERE WITH THE DECISION OF LEARNED CIT(A) ON THIS ISSUE. ACCORDINGLY WE CONFIRM THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 4. THE NEXT ISSUE WHICH IS COMMON IN ASSESSMENT YEARS 2001 - 02 AND 2004 - 05 RELATES TO THE DISALLOWANCE OF INTEREST CL AIMED FROM THE HOUSE PROPERTY INCOME UNDER SECTION 24 OF THE ACT . OUT OF THE AMOUNT CLAIMED AS INTEREST PAYABLE ON LOAN TAKEN FOR CONSTRUCTION OF HOUSE PROPERTY, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.16,038/ - IN THE ASSESSMENT YEAR 2001 - 02 AND RS.6 8,622/ - IN THE ASSESSMENT YEAR 2004 - 05. THE ASSESSING OFFICER HAD DISALLOWED THE SAID CLAIM FOR THE REASON THAT THE SAID INTEREST HAD BEEN PAID BY THE FAMILY MEMBERS OF THE ASSESSEE ON THE LOAN TAKEN BY THEM FROM BANK. HOWEVER, THE ASSESSEE COULD NOT SUB STANTIATE HER CLAIM THAT THESE LOANS WERE ALSO USED FOR THE PURPOSE OF CONSTRUCTION OF THE HOUSE ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 13 PROPERTY. THE LEARNED CIT(A) CONFIRMED THESE DISALLOWANCES AND THE OBSERVATION MADE IN THIS REGARD IN THE ASSESSMENT YEAR 2001 - 02 ARE EXTRACTED BELOW: THE AP PELLANT HAS FAILED TO PRODUCE ANY FURTHER DETAILS OR EVIDENCE TO SHOW THAT THESE AMOUNTS WHICH ARE INTEREST ON LOANS TAKEN BY PERSONS OTHER THAN THE APPELLANT IS ALLOWABLE UNDER SECTION 24 OF THE ACT. TO BE ALLOWED UNDER THIS SECTION IT IS ESSENTIAL TO FI RST ESTABLISH THAT THE MONEYS WERE BORROWED BY THE APPELLANT AND WERE USED FOR THE PURPOSES OF CONSTRUCTION OF HOUSE PROPERTY. SINCE THIS HAS NOT BEEN ESTABLISHED I HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS IN ORDER. ON A CAREFUL PERUSAL OF THE OBSERVATIONS OF LEARNED CIT(A), WE NOTICE THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE HER CLAIM FOR DEDUCTION OF THE IMPUGNED INTEREST. HENCE WE AGREE WITH THE OBSERVATIONS MADE BY THE LEARNED CIT(A) AND ACCORDINGLY UPHOLD HIS ORDER ON THI S ISSUE. 5. THE REMAINING ISSUE PERTAINS TO THE ADDITIONS MADE UNDER SECTION 68 TOWARDS UNPROVED CASH CREDITS. WE PROPOSE TO DEAL WITH THE ADDITION PERTAINING TO THE CASH CREDITS YEAR WISE . 6 CASH CREDITS ADDED IN ASSESSMENT YEAR 2001 - 02 .: IN THIS YEAR, THE FOLLOWING TWO CASH CREDITS HAVE BEEN ADDED. G. HARIHARA PRASAD (HUF) 65,000 S.SARALA 30,000 6 .1 SHRI G.HARIHARA PRASADA RAO IS THE FATHER IN LAW OF THE ASSESSEE. HE HAS FILED THE CONFIRMATION LETTER STATING THAT HIS HUF HAS GIVEN GIFT TO THE ASSESSEE OUT OF THE RENTAL INCOME OF RS.24,000/ - AND ALSO BY UTILIZING THE SALARY INCOME OF RS.60,000/ - RECEIVED BY HIM. THE ASSESSING OFFICER DID NOT ACCEPT THE UTILIZATION OF THE INDIVIDUAL INCOME FOR MAKING THE GIFT IN THE STA TUS OF HUF AND FURTHER CONSIDERING THE LOW RENTAL INCOME OF RS.24,000/ - , HE TREATED THIS LOAN AS UNEXPLAINED AND ADDED THE SAME. THE LEARNED CIT(A) ALSO CONFIRMED THE SAID ADDITION. 6 .2 WE NOTICE THAT THE AMOUNT RECEIVED AS GIFT FROM SHRI G.HARIHARA PRASAD (HUF) WAS RS.65,000/ - AND THE HUF WAS HAVING A RENTAL INCOME OF ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 14 RS.24,000/ - P.A.. IT WAS ALSO STATED THAT THE SALARY AND REMUNERATION RECEIVED IN THE INDIVIDUAL STATUS W ERE ALSO UTILIZED FOR MAKING THIS GIFT. WE ARE OF THE VIEW THAT THERE IS NO NE CESSITY TO DOUBT THE SAID CLAIM IN THE ABSENCE OF ANY MATERIAL TO CONTRADICT THE SAID EXPLANATION OF THE ASSESSEE. FURTHER THE POSSIBILITY OF ACCUMULATION OF RENTAL INCOME OVER THE YEARS HAS NOT BEEN RULED OUT. HENCE, CONSIDERING THE QUANTUM OF GIFT, THE RELATION SHIP BETWEEN THE DONOR AND THE ASSESSEE, THE OCCASION, WE ARE OF THE VIEW THAT THE ASSESSEE HAS FAIRLY EXPLAINED THE SAID GIFT. ACCORDINGLY, WE REVERSE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.65,000/ - MADE ON THIS ACCOUNT. 6. 3 THE NEXT ADDITION PERTAINS THE REJECTION OF THE GIFT RECEIPT OF RS.30,000/ - CLAIMED TO HAVE BEEN RECEIVED FROM SMT. S.SARALA. THE SAID DONOR CLAIMED THE SOURCES AS THE GIFT OF RS.50,000/ - RECEIVED FRO M HER PARENTS AT THE TIME OF HER MARRIAGE, WHICH WAS ROTATED TO EARN INTEREST. CONSIDERING THE QUANTUM OF GIFT, WE ARE OF THE VIEW THAT THE ASSESSEE HAS EXPLAINED THIS GIFT ALSO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ADDITION ALSO AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.30,000/ - MADE ON THIS ACCOUNT. 7 CASH CREDITS ADDED IN ASSESSMENT YEAR 20 02 - 03: IN THIS YEAR, THE FOLLOWING TWO CASH CREDITS HAVE BEEN ADDED: SHRI G.SAMBASIVA RAO - RS. 95 ,000/ - SMT. D.G.ASHMA - RS.40,000/ - 7 .1 THE ADDITION MADE DURING THIS YEAR TOWARDS THE AMOUNT CLAIMED TO HAVE BEEN RECEIVED FROM SHRI G.SAMBASIVA RAO IS RS.95,000/ - ONLY, WHERE AS THE LEARNED CIT(A) HAS ERRONEOUSLY TAKEN IT AS RS.1,00, 000/ - . THE SAID CREDITOR EXPLAINED HIS SOURCES FOR GIVING THIS LOAN AS RETIREMENT BENEFITS AND AGRICULTURAL INCOME FROM 1.37 ACRES OF LAND. DURING THE COURSE OF REMAND PROCEEDINGS, THE ASSESSING OFFICER EXAMINED THE SAID CREDITOR, BUT HE COULD PRODUCE AN Y PROOF OF HAVING RECEIVED THE RETIREMENT BENEFITS. HENCE THE LEARNED CIT(A) CONFIRMED THE SAID ADDITION. IN THE PAPER BOOK FILED BY THE ASSESSEE, THE BANK ACCOUNT COPY OF THE CREDITOR WAS BROUGHT TO OUR NOTICE. BUT THE DEFECT POINTED OUT BY THE TAX AU THORITIES IS WITH REGARD TO THE PROOF OF ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 15 RECEIPT OF INCOME CLAIMED TO HAVE BEEN RECEIVED BY THE CREDITOR. IN THE ABSENCE OF ANY MATERIAL TO SUBSTANTIATE THIS CLAIM, IT CAN BE SAID THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE BURDEN OF PROOF PLACED UPON H ER UNDER SECTION 68 OF THE ACT. ACCORDINGLY, WE CONFIRM THE ADDITION OF RS.1.00 LAKH PERTAINING TO THIS CREDITOR. 7 .2 SMT. D.G. ASHMA CLAIMED THE SOURCES FOR GIVING THE IMPUGNED LOAN OF RS.40,000/ - TO BE THE ACCUMULATION OF AGRICULTURAL INCOME FROM 2. 20 ACRES OF AGRICULTURAL LAND . HOWEVER, THE ASSESSING OFFICER, DURING THE REMAND PROCEEDINGS, NOTICED THAT THE SAID AGRICULTURAL LAND WAS RECEIVED BY HER AS STRIDHAN IN 2002, I.E. PRIOR TO THE DATE OF LENDING OF LOAN, I.E. 7.6.2001. ACCORDINGLY THE ASSES SING OFFICER HAS OPINED THAT THE SAID CREDITOR COULD NOT HAVE ACCUMULATED THE IMPUGNED AMOUNT OF RS.40,000/ - FROM THE AGRICULTURAL SOURCES AND HENCE THE LEARNED CIT(A) HAS ALSO CONFIRMED THE SAID ADDITION. SINCE IT IS PROVED THAT THE CREDITOR DID NOT HAVE INCOME FROM AGRICULTURAL SOURCES AT THE TIME THE LOAN WAS GIVEN TO THE ASSESSEE, THE EXPLANATION FAILS AND IN TURN, IT CAN BE SAID THAT THE ASSESSEE HAS ALSO FAILED TO DISCHARGE THE BURDEN OF PROOF PLACED UPON HER UNDER SECTION 68 OF THE ACT IN RESPECT OF THIS CREDITOR. ACCORDINGLY, WE CONFIRM THE ADDITION OF RS.40,000/ - PERTAINING TO THIS CREDITOR. 8 . CASH CREDITS ADDED IN ASSESSMENT YEAR 20 0 3 - 0 4 : IN THIS YEAR, THE FOLLOWING T HREE CASH CREDITS HAVE BEEN ADDED: SHRI G.SAMBASIVA RAO - RS. 1,00 ,000/ - SHRI A . SASI PRASAD - RS. 1,50 ,000/ - SMT. A.RAJYALAKSHMI - RS.1,20,000/ - 8.1 THE FIRST MENTIONED CREDITOR SHRI G.SAMBASIVA RAO HAD ADVANCED A LOAN OF RS.95,000/ - DURING THE IMMEDIATELY PRECEDIN G YEAR. VIDE PARAGRAPH 7.1, (SUPRA), WE HAVE CONFIRMED THE ADDITION OF RS.95,000/ - IN THAT YEAR. SINCE THE FACTS RELATING THE PRESENT LOAN UNDER CONSIDERATION REMAIN THE SAME AS THAT OF THE EARLIER YEAR, FOR THE REASONS STATED IN PARAGRAPH 7.1, (SUPRA), WE ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 16 CONFIRM THE ADDITION OF RS.1.00 LAKH IN RESPECT OF THIS CREDITOR FOR THIS YEAR ALSO. 8.2 THE NEXT TWO CREDITORS ARE RELATED TO EACH OTHER AS HUSBAND AND WIFE. INITIALLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THEY STATED THE SOURCES TO BE THE AGRICULTURAL INCOME FROM LIME GARDEN OF 2 ACRES AND 1 ACRE RESPECTIVELY HELD BY THEM. HENCE THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CREDIT WORTHINESS AND ADDED THE IMPUGNED CASH CREDITS . HOWEVER, IN THE REMAND PROCEEDINGS, THESE TWO CREDITORS W ERE EXAMINED. SHRI A.SASIKUMAR EXPLAINED THAT HE GOT COMPENSATION OF RS.4.04 LAKHS FROM THE GOVT. OF ANDHRA PRADESH ON COMPULSORY ACQUISITION OF HIS LAND AND FURTHER HE ALSO CLAIMED TO HAVE UTILIZED THE FUNDS SENT BY HIS SONS RESIDING IN USA. SIMILARLY S MT. A.RAJYALAKSHMI CLAIMED THAT SHE HAD SOLD 3 ACRES OF LAND IN 1988 FOR A CONSIDERATION OF RS.1.62 LAKHS WHICH WAS USED TO GENERATE INTEREST INCOME. BESIDES THE ABOVE SHE CLAIMED TO HAVE AGRICULTURAL INCOME ALSO. ACCORDINGLY SHE CLAIMED THAT SHE HAD LENT THE AMOUNT OF RS.1.20 LAKHS TO THE ASSESSEE FROM OUT OF THE S OURCES STATED ABOVE. IN VIEW OF THE FRESH EXPLANATIONS ABOUT THE AVAILABILITY OF FUNDS, THE ASSESSING OFFICER HAS OPINED THAT THESE TWO CREDITORS HAD ENOUGH SOURCES AND ACCORDINGLY REPORTED THA T THESE TWO LOANS MAY BE ACCEPTED AS GENUINE. HOWEVER, THE LEARNED CIT(A) DECLINED TO ACCEPT THE REMAND REPORT BY STATING THAT THESE TWO PERSONS HAVE FAILED TO SUBSTANTIATE THEIR SOURCES WITH MATERIAL EVIDENCE. 8.3 IT IS NOTICED THAT THE ASSESSEE HAD OBTAINED A LOAN OF RS.75,000/ - IN THE IMMEDIATELY PRECEDING YEAR ALSO FROM SHRI A. SASIKUMAR AND BASED ON THE VERY SAME REMAND REPORT OF THE ASSESSING OFFICER, THE LEARNED CIT(A) HAS DELETED THE ADDITION OF RS.75,000/ - MADE IN THAT YEAR. IT CAN NOT BE DE NIED THAT T HE REMAND REPORT WAS SUBMITTED BY THE ASSESSING OFFICER AFTER MAKING NECESSARY EXAMINATION OF THE CREDITOR. HAVING ACCEPTED THE REMAND REPORT ON SAME SET OF FACTS IN RESPECT OF THIS CREDITOR IN THE IMMEDIATELY PRECEDING YEAR, WE DO NOT FIND ANY REASON IN NOT ACCEPTING THE SAID REPORT FOR THE YEAR UNDER CONSIDERATION. THE SAID STANDARDS EQUALLY APPLY TO THE REMAND REPORT SUBMITTED IN THE CASE OF SMT. A.RAJYALAKSHMI ALSO . ACCORDINGLY, WE SET ASIDE ITA NOS.31 TO 35/VIZAG/2010 DR. GOGINENI UMA, TENALI 17 THE ORDER OF LEARNED CIT(A) IN RESPECT OF BOTH TH E CREDITORS AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.1.50 LAKHS AND RS.1.20 LAKHS PERTAINING TO SHRI A.SASIKUMAR AND SMT. A.RAJYALAKSHMI. 9. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATI STICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 11.11.2010 SD/ - SD/ - (SUNIL KUMAR YADAV) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM, DATED 11 TH NOVEMBER, 20 10 COPY TO 1 DR. GOGINENI UMA, C/O SRI S. RAMA RA O, ADVOCATE, 102, SHRIYAS ELEGANCE, DOOR NO.3 - 6 - 643, ST.NO.9, HIMAYATNAGAR, HYDERABAD 2 ACIT, CIRCLE - 1(1), GUNTUR 3 THE CI T, GUNTUR 4 THE CIT (A) , GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SEN IOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM