2006 (7) TMI 528 - AT - Income Tax

Summary

Issues:
- Appeal against CIT(A)'s order treating assessee as default under section 201(1) and levying short deduction of tax at source on reimbursement of conveyance allowance to employees.

Analysis:
1. The appeal was filed against CIT(A)'s order for the assessment year 1997-98 under section 143(3) of the Income-tax Act, 1961. The issue revolved around the treatment of conveyance allowance given to employees by the assessee. The Assessing Officer observed a short deduction of tax at source on the conveyance allowance and levied a sum on the assessee under section 201(1) of the Act.

2. The Assessing Officer rejected the claim of the assessee, stating that the conveyance allowance was not a reimbursement but a fixed sum given to employees. The learned CIT(A) confirmed this decision, emphasizing that the expenses incurred or reimbursed for traveling were not qualified for exemption under section 10(14) of the Act and would form part of the employees' salary. The assessee contended that the conveyance allowance was for commuting expenses and not excessive or unreasonable.

3. The learned counsel for the assessee argued that the conveyance allowance was based on actual expenditure likely to be incurred by employees and referred to Circular No. 23(L) iii-8 of 1956. They also cited previous judgments to support their case. The Departmental Representative supported the CIT(A)'s order.

4. The Tribunal considered the submissions and legal provisions. It noted that the conveyance allowance was not exempt under section 10(14) of the Act as it did not meet the criteria of expenses wholly, necessarily, and exclusively incurred in the performance of duties. However, it found that the reimbursement was for the purposes of employment and reasonable. The Tribunal reversed the CIT(A)'s findings, canceling the levy under section 201 of the Act.

5. The Tribunal also addressed the interest levied under section 201(1A), which was consequential to the main issue. Since the main issue was decided in favor of the assessee, the interest levy was also canceled. Another ground raised by the assessee was dismissed as not pressed. Overall, the appeal was partly allowed in favor of the assessee.