Sri Bhaskar Mustiyala, Karimnagar, Hyderabad V. ITO, Ward-12(4), Hyderabad

ITA 555/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53747 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 05-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T DEWAKAR PRASAD
• Keywords: Revised return
• Section: 10(14); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.555/HYD/2011 ASSESSMENT YEAR 2005-06 SHRI BHASKAR MUSTIYALA KAREEMNAGAR (PAN AJOPM3998C) VS I NCOME T AX O FFICER , WARD 12(4), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI MOHD. AFZAL RESPONDENT BY : SHRI T. DEWAKAR PRASAD DATE OF HEARING : 12.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A) II, HYDERABAD DATED 25.3.2011 AND PERTAINS TO THE ASSESSMENT YEAR 2005- 06. 2. THE ASSESSEE IS A RESIDENT AND AN ORDINARY RES IDENT IN INDIA. IN THE FINANCIAL YEAR 2004-05 THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 30.7.2005. SINCE HIS GLOBAL INCOME IS TO BE TAXED IN INDIA, THE ASSESSEES US INCOME WAS ADDED TO HIS INDIAN INCOME . HIS US INCOME FOR THE MONTH OF APRIL, 2004 IS PROPORTIONAL FOR THE MONTH OF MAY, 2004 AMOUNTING TO RS.2,32,810/- AND T HIS WAS ADDED BACK TO INDIAN INCOME AND ASSESSED TO TAX. 3. THE ASSESSING OFFICER HELD THAT AS PER THE PROV ISIONS OF SECTION 10(14) READ WITH RULE 2BB(1), ONLY THE PRES CRIBED ITA NO.555/HYD/2011 SHRI B. MUSTIYALA, KARIMNAGAR 2 SPECIAL ALLOWANCE OF BENEFITS NOTIFIED BY THE BOARD ARE ALLOWABLE AS EXEMPTION. THE LIVING ALLOWANCE CLAIMED BY THE ASSESSEE IS NOT NOTIFIED U/S 10(14) OF THE ACT. EVEN IF IT IS TAKEN AS DAILY ALLOWANCE, THE SAME IS ALLOWABLE IN RESPECT OF EXPE NDITURE INCURRED IN CONNECTION WITH TRANSFER, TO MEET THE O RDINARY DAILY CHARGES INCURRED BY AN EMPLOYEE ON ACCOUNT OF ABSEN CE FROM HIS NORMAL PLACE OF DUTY. IN THE CASE OF CONVEYANC E ALLOWANCE, THE SAME IS ALLOWABLE IN RESPECT OF EXPENDITURE INC URRED ON CONVEYANCE IN PERFORMANCE OF DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT, PROVIDED THAT FREE CONVEYANCE IS NOT PRO VIDED BY THE EMPLOYER. AS SEEN FROM THE EVIDENCE FURNISHED BY T HE ASSESSEE, IT IS NOT CLEAR AS TO THE NATURE OF ALLOW ANCE AND ITS UTILISATION. IN VIEW OF THIS, THE ASSESSEE S CLAI M FOR EXEMPTION U/S 10(4) APPEARS TO BE NOT CORRECT. 4. THE ASSESSEE CAME UP BEFORE THE CIT(A) FOR AN A PPEAL CONTENDING THAT THE ASSESSING OFFICER ERRED IN ADD ING BACK THE ASSESSEES US INCOME AS IT WAS IN THE NATURE OF OVE RSEAS LIVING ALLOWANCE WHICH WAS EXEMPT U/S 10(14) OF THE ACT. 5. THE CIT(A) CALLED FOR THE REMAND REPORT OF THE ASSESSING OFFICER. THE ASSESSEES REPLY TO THE REMAND REPORT IS THAT THE ASSESSEE WAS DEPUTED TO USA BY HIS EMPLOYER M/S TAT A CONSULTANCY SERVICES LTD. THE ASSESSEE CONTENDED T HAT IT WAS CLEAR THAT THE ASSESSEE WAS ABSENT FROM HIS NORMAL PLACE OF DUTY WHILE ON DEPUTATION AND AS PER E-MAIL RECEIVED FROM TATA CONSULTANCY, THE ASSESSEE WAS GOVERNED BY THE ALLOW ANCE MODEL, RECEIVED AN AMOUNT US $11,583 AS LIVING FOR THE PERIOD FROM JANUARY, 2004 TO MAY 2004. THE ASSESSEE FILED COPIES OF E-MAIL AND US TAX FORM FOR THE YEAR 2004 AND CLAIME D THAT IT IS IN THE NATURE OF OVERSEAS LIVING ALLOWANCE EXEMPT U /S 10(14) ITA NO.555/HYD/2011 SHRI B. MUSTIYALA, KARIMNAGAR 3 READ WITH RULE 2BB(1) OF IT ACT AND FILED PROOF OF AMOUNT SPENT BY THE ASSESSEE. 6. THE ASSESSING OFFICER IN HIS REPORT DATED 17.3. 2011 SUBMITTED THAT THE PROVISIONS OF SECTION 10(14) REA D WITH RULE 2BB(1) HAS NOT NOTIFIED THE LIVING ALLOWANCE AS EXE MPT U/S 10(14) OF THE ACT. HOWEVER, THE DECLARATION OF THE ASSESSEE SHOWED THAT OUT OF THE AMOUNTS SOME AMOUNT HAS BEEN SPENT TOWARDS CONVEYANCE, APARTMENT EXPENSES ETC. THE AS SESSING OFFICER POINTED OUT THAT NOWHERE THIS BIFURCATION W AS MENTIONED BY HIS EMPLOYER IN USA. IN VIEW OF THIS, THE ASSESS ING OFFICER HELD THAT THE CLAIM OF EXEMPTION U/S 10(14) IS NOT AN ALLOWABLE ONE. 7. THE ASSESSEE SUBMITTED THE FOLLOWING WRITTEN SUBMISSIONS ON 24.3.2011 ON THE REPORT OF THE ASSES SING OFFICER: WHEREVER POSSIBLE, THE ASSESSEE HAS FURNISHED RECE IPTS, OTHERWISE THE EXPENSES ARE BASED ON NORMAL STANDARD S OF LIVING IN USA IT IS DIFFICULT TO OBTAIN BILL/RECEIPT FOR E ACH AND EVERY ITEM, THE ASSESSEE HAS FURNISHED A SELF DECLARATION DULY NOTARISED IN THIS MATTER WHICH MAY KINDLY BE ACCEPT ED. THE ASSESSEE HAS CLAIMED ALLOWANCES TO THE EXTENT OF US $3000 AS EXEMPT U/S 10(14) ACTUALLY SPENT BY HIM AS EXPLAINE D STATEMENT OF COMPUTATION OF INCOME IS BEING CLOSED . 8. HE RELIED THE FOLLOWING CASE LAWS IN SUPPORT HI S ARGUMENTS: A) CIT VS. ARTHUR FUCHS (1993) 202 ITR 656 (PATNA HC) B) ALESSANDRO CONSTANTINES CASE (226 ITR 883) C) CIT VS. GOSLINO MARIO (2000) (241 ITR 312) (SC) ITA NO.555/HYD/2011 SHRI B. MUSTIYALA, KARIMNAGAR 4 9. THE CIT(A) HELD THAT SINCE THE ASSESSEE HAS NOT CLAIMED DEDUCTION U/S 10(14) AND ALSO THE FOREIGN TAX CREDI T IN THE RETURN FIELD AND IT WAS ONLY DURING THE ASSESSMENT PROCEEDINGS WHEN THE ASSESSING OFFICER HAS ENQUIRED AS TO THE A LLOWANCES RECEIVED, THE CLAIMS WERE MADE. NO REVISED RETURN WAS FILED CLAIMING THE SAME. FOLLOWING SUPREME COURTS DECIS ION IN THE CASE OF GOETZE INDIA LTD. (SUPRA), THE CIT(A) DISMI SSED THE GROUNDS NO.1 &2. 10. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US . SHRI MOHD. AFZAL, THE LEARNED COUNSEL FOR THE ASSESSEE R ELIED ON IN THE CASE OF MADANLAL MOHANLAL NARANG VS. ACIT (104 ITD AT PAGE 0190) (MUM) (2006). 11. SHRI T. DIWAKAR PRASAD, THE LEARNED DEPARTMENT AL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 12. WE HEARD BOTH THE PARTIES. THE DECISION OF TH E APEX COURT IN THE CASE OF GOETZE INDIA LTD. (SUPRA) DOES NOT APPLY TO APPELLATE AUTHORITIES. HENCE WE ADMIT THE GROUNDS OF APPEAL OF THE ASSESSEE CLAIMING RELIEF U/S 10(14) OF THE IT A CT AND DECIDE THE SAME ON MERITS. WE FIND THAT THIS ISSUE HAS BE EN ELABORATELY DISCUSSED IN ITD 104 AT PAGE 0190 WHICH IS REPRODUCED BELOW: 7. THE EXPRESSION TO THE EXTENT TO WHICH SUCH EXPENSES ARE ACTUALLY INCURRED, AS FINDS PLACE IN SECTION 10 (14)(I), IS NOT NEW TO THE IT ACT. IT WAS FIRST INTRODUCED W.E. F. 1ST APRIL, 1955, IN SECTION 4(3)(VI) OF THE INDIAN IT A CT, 1922 WHICH DEALT WITH THE EXEMPTION OF ALLOWANCE TO THE SALARIED EMPLOYEES. THIS AMENDMENT WAS MADE IN THE BACKDROP OF HON'BLE BOMBAY HIGH COURT'S JUDGMENT IN THE ITA NO.555/HYD/2011 SHRI B. MUSTIYALA, KARIMNAGAR 5 CASE OF TEJAJI FRASARAM KHARAWALLA V. CIT (1948) 16 ITR 260 (BOM) WHEREIN THEIR LORDSHIPS HAD HELD THAT EXEMPTION UNDER SECTION 4(3)(VI) WAS AVAILABLE EVEN IF PORTION OF THE ALLOWANCE WAS NOT CONSUMED AND STOOD AS SURPLUS IN THE HANDS OF THE EMPLOYEES. SUBSEQUENTLY , THOUGH THIS DECISION WAS REVERSED BY THE HON'BLE SU PREME COURT IN THE CASE OF CIT V. TEJAJI FRASARAM KHARAWA LLA , NOT BEFORE SECTION 4(3)(VI) WAS AMENDED, W.E.F. 1ST APRIL, 1955, BY FINANCE ACT, 1955. THIS AMENDMENT, IT APPE ARS, RESULTED IN CONSIDERABLE APPREHENSION AMONGST THE SALARIED EMPLOYEES AS TO HOW CAN THEY BE EXPECTED T O MAINTAIN METICULOUS DETAILS AND EVIDENCE OF EXPENDI TURE INCURRED BY THEM FOR THE ACTUAL USAGE OF ALLOWANCE. TO ALLAY THESE APPREHENSIONS, THE CBDT, ON 1ST AUG., 1 955, ISSUED A CIRCULAR WHICH IS REPRODUCED BELOW FOR REA DY REFERENCE : SPECIAL ALLOWANCE OR BENEFIT BEING REASONABLE AND N OT DISPROPORTIONATELY HIGH--NO DETAILS OF EXPENSES ACT UALLY INCURRED NEED BE ASKED FOR THE PURPOSE OF GRANTING EXEMPTION UNDER SECTION 4(3)(VI) OF 1922 ACT. THE EXEMPTION UNDER SECTION 4(3)(VI) IN RESPECT OF ANY SPECIAL ALLOWANCE OR BENEFIT WILL BE AVAILABLE FROM THE ASST. YR. 1955-56 ONLY TO THE EXTENT OF THE SANCTIO NED AMOUNTS. GENERALLY SPEAKING, WHERE THE SPECIFIC ALLOWANCE IS REASONABLE WITH REFERENCE TO THE NATUR E OF THE DUTIES PERFORMED BY THE ASSESSEE AND ARE NOT DISPROPORTIONATELY HIGH COMPARED TO THE SALARY RECE IVED BY HIM, NO ATTEMPT WILL ORDINARILY BE MADE TO CALL FOR DETAILS OF THE EXPENSES ACTUALLY INCURRED BY HIM WITH A VIE W TO DISENTITLING HIM TO SOME EXTENT FROM THE EXEMPTION. AN ENQUIRY WILL, OF COURSE, BE JUSTIFIED AND WILL BE M ADE IN ITA NO.555/HYD/2011 SHRI B. MUSTIYALA, KARIMNAGAR 6 CASES WHERE THE ALLOWANCES ARE PRIMA FACIE UNREASON ABLY HIGH. SOURCE : DIRECT TAXES CIRCULARS VOL. 1-1994 EDN.--P. 1130 IT IS, THEREFORE, CLEAR THAT EVEN AS THE PROVISIONS WERE AMENDED SO AS TO ALLOW THE EXEMPTION OF ALLOWANCE O NLY TO THE EXTENT THE ALLOWANCES WERE USED FOR THE PURPOSE S FOR WHICH THE SAME WERE GRANTED, EVEN THIS AMENDMENT DI D NOT VEST THE AO'S WITH POWERS TO CALL FOR DETAILS O F ACTUAL EXPENDITURE UNLESS, GENERALLY SPEAKING, THE ALLOWAN CES ARE UNREASONABLY HIGH VIS-A-VIS SALARIES OF THE ASS ESSEE OR WITH REFERENCE TO THE NATURE OF DUTIES PERFORMED BY THE ASSESSEE. 8. THE ABOVE CIRCULAR WAS UNDOUBTEDLY ISSUED UNDER THE IT ACT, 1922 BUT THEN ALL THE CIRCULARS ISSUED UNDER SECTION 1922 ACT DO NOT CEASE TO HOLD GOOD IN LAW. SECTION 297(2)(K) SPECIFICALLY PROVIDES THAT NOTWITHSTANDIN G THE REPEAL OF IT ACT, 1922, AMONGST OTHER THINGS, ANY INSTRUCTIONS ISSUED UNDER ANY PROVISIONS OF THE REP EALED ACT SHALL, SO FAR AS NOT INCONSISTENT WITH THE CORR ESPONDING PROVISIONS OF IT ACT, 1961, DEEMED TO HAVE BEEN ISS UED UNDER THE CORRESPONDING PROVISIONS OF THE NEW ACT, AND SHALL CONTINUE TO REMAIN IN FORCE ACCORDINGLY. IN O THER WORDS, TO THE EXTENT THE LEGAL PROVISIONS OF 1922 A CT AND 1961 ACT ARE IN PAN MATERIA, CIRCULARS AND INSTRUCT IONS ISSUED UNDER THE 1922 ACT WILL ALSO HOLD GOOD. THE EXPRESSED VIEW OF THE PROVISIONS OF SECTION 297(2)( K) STILL HOLDS GOOD AND CONTINUES TO BE IN FORCE. THE EXPRES SION USED, I.E., TO THE EXTENT TO WHICH SUCH EXPENSES AR E ACTUALLY INCURRED BEING ABSOLUTELY IDENTICAL IN BOT H THE ITA NO.555/HYD/2011 SHRI B. MUSTIYALA, KARIMNAGAR 7 ACTS, THE PROVISIONS OF THE ABOVE CIRCULAR, IN OUR HUMBLE UNDERSTANDING, APPLY UNDER THE 1961 ACT AS WELL. 13. WE ARE OF THE OPINION THAT THE RATIO OF THE AB OVE CITED DECISION APPLIES TO THE PRESENT CASE BEFORE US. WE FIND THAT THE REVENUE HAS NOT MADE OUT A CASE THAT THE ALLOWANCE GRANTED TO THE ASSESSEE IS UNREASONABLE OR EXCESSIVE HAVING RE GARD TO THE SALARY OF THE ASSESSEE OR THE LEGITIMATE MINIMUM RE QUIREMENTS FOR THE PURPOSE FOR WHICH THE ALLOWANCES WERE GRANT ED. IN THE LIGHT OF THE SAID CIRCULAR OF THE CBDT OF 1/8/1955, IT IS NOT OPEN FOR THE REVENUE TO CALL FOR THE DETAILS OF THE EXPENSES ACTUALLY INCURRED UNLESS THE SPECIFIC ALLOWANCE IS DISPROPORTIONATELY HIGH COMPARED TO THE SALARY RECE IVED BY HIM OR UNREASONABLE WITH REFERENCE TO THE NATURE OF DUT IES PERFORMED BY THE ASSESSEE. SINCE NONE OF THE CONDI TIONS ARE SATISFIED WITH THE PRESENT CASE, THE DISALLOWANCE S USTAINED BY THE CIT(A) IS SET ASIDE AND ALLOW THE CLAIM OF THE APPEAL OF THE ASSESSEE FOR DEDUCTION U/S 10(14) OF THE ACT AND CR EDIT FOR FOREIGN TAX PAID. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT 31.10.2011 S D/ - (CHANDRA POOJARI) S D/ - (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED THE 31ST OCTOBER, 2011 ITA NO.555/HYD/2011 SHRI B. MUSTIYALA, KARIMNAGAR 8 COPY FORWARDED TO: 1. SHRI MOHD AFZAL, ADVOCATE, 11-5-465, FLAT NO.402, SHERSONS RESIDENCY, CRIMINAL COURT ROAD, RED HILLS , HYDERABAD C/O SHRI BHASKAR MUSTIYALA, 2-10-1173, JYOTHINAGAR, KARIMNAGAR-505001. 2. THE ITO, WARD 12(4), HYDERABAD 3. THE CIT(A) II, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/