2008 (6) TMI 374 - AT - Income Tax

Summary

Issues Involved:
1. Whether the expenses incurred by the company for renovating the flats owned by the directors should be considered as income under section 2(24)(iv) of the Income-tax Act.
2. Whether such income can be assessed in the block assessment period.
3. Whether the salary income subjected to TDS can be considered as undisclosed income.
4. Jurisdictional issue regarding the issuance of notice under section 143(2) beyond the prescribed time-limit.

Issue-wise Detailed Analysis:

1. Income under Section 2(24)(iv):
The primary issue was whether the expenses incurred by Tops Detectives Security & Services Ltd. for renovating flats owned by its directors should be treated as income under section 2(24)(iv) of the Income-tax Act. The provision states that the value of any benefit or perquisite obtained from a company by a director or a person with substantial interest in the company is considered income. The Tribunal held that the directors received a benefit in the form of renovation expenses, which improved their living conditions. Despite the expenditure being recorded in the company's books and allowed under section 37(1), the directors gained a substantial benefit, making it taxable under section 2(24)(iv).

2. Assessment in Block Period:
The Tribunal examined whether the renovation expenses could be assessed in the block period. The definition of "undisclosed income" under section 158B(b) includes any income not disclosed for tax purposes. Since the directors did not disclose the benefit in their returns and it was detected during the search, the Tribunal concluded that it constituted undisclosed income. The expenses were incurred before 1-4-2000, and the directors were aware of the benefits but did not report them. Consequently, the amounts were rightly assessed in the block period.

3. Salary Income Subjected to TDS:
The Tribunal addressed whether salary income, which was subject to TDS, could be treated as undisclosed income. Various judicial pronouncements have established that income subjected to TDS and advance tax cannot be considered undisclosed. The CIT(A) correctly deleted the addition of salary income, and the Tribunal upheld this decision, rejecting the revenue's ground.

4. Jurisdictional Issue:
The cross-objections raised by the assessees included a jurisdictional issue regarding the issuance of notice under section 143(2) beyond the prescribed time-limit. However, these cross-objections were withdrawn by the assessees and thus were treated as dismissed.

Conclusion:
The Tribunal upheld the addition of Rs. 40,85,172 as income under section 2(24)(iv) for the directors, considering it a benefit derived from the company. This amount was correctly assessed in the block period due to non-disclosure by the directors. The salary income subjected to TDS was rightly excluded from undisclosed income. The jurisdictional cross-objections were withdrawn and dismissed. The Tribunal's detailed analysis and adherence to legal provisions ensured a comprehensive judgment on the issues involved.