2023 (5) TMI 1329 - AT - Income Tax

Jurisdiction of CIT(A) u/s 251 - Classification of Interest-Free Loans as Perquisites - Taxability as salary u/s 17 - action for not deducting TDS from the perquisite in respect of interest free loans given to directors - importance of adhering to the powers granted by the Act HELD THAT - In the case in hand after deciding the grounds the CIT(A) directed the AO to take appropriate action for not deducting TDS from the perquisite in respect of interest free loans given to directors and to take appropriate action to tax the perquisites u/s. 17 of the Act. In our considered view these directions were unwarranted and uncalled for as the issue was not before the CIT(A) no such power has been granted by the Act, therefore, the impugned direction of the CIT(A) is held to be in excess of the jurisdiction conferred by section 251 of the Act and hence same are directed to be deleted. Ground No.2 and 3 taken together are allowed.

Summary

Issues Involved:
The issues involved in the judgment are the disallowance of interest paid on loans raised for business purposes, classification of interest-free loans to directors as perquisites u/s 17 of the Income Tax Act, and the direction to deduct TDS from the perquisites.

Disallowance of Interest Paid on Loans:
The appeal was filed against the order of the CIT(A) upholding a disallowance of interest paid on loans raised for business purposes. The assessee contended that the disallowance under u/s 36(1)(iii) was erroneous. The Counsel did not press ground No.1 and 4, leading to their dismissal. The delay in filing the appeal was explained due to a bonafide belief that no appeal was required after receiving substantial relief from the CIT(A). The delay was condoned considering judicial precedents emphasizing the need for justice despite technicalities.

Classification of Interest-Free Loans as Perquisites:
The main contention was the CIT(A)'s classification of interest-free loans to directors as perquisites u/s 17 of the Income Tax Act. The CIT(A) directed the Assessing Officer to tax these perquisites and take action for not deducting TDS. The Counsel argued that these directions exceeded the CIT(A)'s powers as they were not raised in the grounds of appeal. The DR cited section 251 of the Act to support the CIT(A)'s directions. However, the Tribunal found the directions unwarranted and beyond the CIT(A)'s jurisdiction, leading to their deletion. Grounds No.2 and 3 were allowed in this regard.

Conclusion:
The Tribunal ruled in favor of the assessee, deleting the disallowance upheld by the CIT(A) and setting aside the directions regarding the classification of interest-free loans as perquisites and TDS deduction. The judgment highlighted the importance of adhering to the powers granted by the Act and ensuring that decisions are based on the grounds raised in the appeal.