2012 (6) TMI 354 - AT - Income Tax

Allowable deduction from salary received by MLA - AO allowed daily allowance and constituency allowance, fully exempt u/s 10(17)(i) and 10(17)(iii) and dis-allowed balance amount claimed by assessee - assessee contending deduction u/s 57 - Held that - Salary and other allowances received by an MLA, arising out of such position, are to be assessed to tax under the head Income from other sources , however CIT(A) has rightly affirmed act of AO that provisions of section 57 do not provide for any deduction of expenditure from such salary income, etc of an MLA. Only those exemptions as laid out as per the provisions of section 10(14) read with Rule 2BB(1) and section 10(17) are only allowable from an MLA s salary. Unexplained credit u/s 68 - alleged gift to son - assessee contended source of gift was out of loan obtained from Canara Bank, withdrawals from partnership firm and agricultural income of HUF - Held that - Assessee merely furnished an explanation in letter without any corroborative evidence or documentary proof to substantiate the claim. No copy of sanction letter for loan, name and capital account of the firm from which the withdrawals were allegedly made, proof of withdrawals from HUF out of sources from agricultural income were provided. Hence addition rightly made - Decided against assessee.

Summary

Issues Involved:
1. Exemption of expenditure under sections 10(14) and 10(17) of the Income Tax Act.
2. Deduction under section 57 of the Income Tax Act.
3. Treatment of a gift of Rs. 15 lakhs as unexplained cash credits under section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Exemption of Expenditure under Sections 10(14) and 10(17):
The assessee, an MLA, claimed exemptions for various expenses, including daily allowance and constituency allowance. The Assessing Officer allowed Rs. 1,61,400 out of the claimed Rs. 4,37,881, disallowing Rs. 2,76,481. The CIT(A) upheld this decision, referencing the case of M. Venkata Subbaiah Vs. ITO, which clarified that only specific allowances mentioned in sections 10(17) and 10(14) and Rule 2BB of the Income Tax Rules, 1962, are exempt. The Tribunal agreed, noting that the legislature consciously prescribes exemptions for certain allowances, and there is no provision for a blanket exemption for all allowances under section 10(14). Thus, the claim for additional exemptions was dismissed.

2. Deduction under Section 57:
The assessee argued that since his income as an MLA was taxable under 'Income from other sources' (section 56), he should be allowed deductions under section 57. The Tribunal, referencing the Indore Bench decision in Jaswant Singh Vs. ITO, held that section 57 does not provide for deductions from the salary and allowances of an MLA. Only specific exemptions under sections 10(14) and 10(17) are permissible. Therefore, the claim for deductions under section 57 was also dismissed.

3. Treatment of Gift of Rs. 15 Lakhs as Unexplained Cash Credits:
The assessee gifted Rs. 15 lakhs to his son, claiming the source as a loan from Canara Bank, withdrawals from a partnership firm, and HUF agricultural income. The Assessing Officer and CIT(A) found no documentary evidence to support these claims. The Tribunal noted the absence of a loan sanction letter from Canara Bank and other corroborative documents. Despite opportunities, the assessee failed to provide necessary evidence. Consequently, the gift was treated as unexplained cash credits under section 68 and taxed as income from other sources. The Tribunal upheld this decision, dismissing the assessee's appeal on this ground.

Conclusion:
The Tribunal dismissed the appeal, affirming the lower authorities' decisions on all grounds. The exemptions under sections 10(14) and 10(17) were limited to specific allowances, no deductions were allowed under section 57 for MLA income, and the Rs. 15 lakhs gift was rightly treated as unexplained cash credits under section 68.