2017 (6) TMI 453 - AT - Income Tax

Addition on account unexplained perks u/s 17(2)(iii) - employee v/s directorship - unexplained expenditure incurred on foreign travels - as per AO assessee had undertaken foreign travel tour to UAE Singapore etc. but could not furnish the reasons/ purpose - Held that - Since the authorities below simply noted that assessee was a director in the aforesaid company therefore conditions of section 17 (2)(iii) would not apply in the case of assessee. Therefore on this reason itself the addition of Rs. 5 lacs would be deleted. Assessee filed certificate and Board resolution of M/s. Design & Development India Pvt. Ltd. in which it is clarified that Board has sent the assessee to foreign trip for business purposes and all the expenditure are borne by the company. It is also certified that assessee was a non-employee director and share holder in the company and no salary or director s fees was paid to her by the company during the year under consideration. These evidences on record clearly prove that assessee undertaken foreign visits for the purpose of business of company and is not a perquisite within the meaning of section 17(2)(iii) of the I.T. Act. Further the authorities below made addition of Rs. 3 lacs in respect of foreign visit undertaken by assessee on 1st July 2011. Ld. Counsel for assessee referred to PB 62 which is certificate of foreign visit issued by the company to show that assessee has visited foreign country from 30th June 2012 to 1st July 2011. Therefore this visit was already part of the foreign visit of the assessee. Therefore no separate addition should have been made on estimate in a sum of Rs. 3 lacs. - Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs. 5,00,000 on account of unexplained perks u/s 17(2)(iii) of I.T. Act.
2. Addition of Rs. 3,00,000 on account of unexplained expenditure incurred on foreign travels.
3. Excessive nature of the additions confirmed by Ld. CIT(A).

Analysis:

Issue 1: Addition of Rs. 5,00,000 on account of unexplained perks u/s 17(2)(iii) of I.T. Act:
The Assessing Officer (AO) disallowed the expense claimed of Rs. 5,00,000 u/s 17(2)(iii) as unexplained perks due to foreign travel undertaken by the assessee without proper justification. The assessee failed to provide evidence justifying the business purpose of the visits. However, the assessee argued that the expenses were borne by the company, where she was a director, and were accepted by the AO previously. The Ld. CIT(A) confirmed the addition citing lack of official work evidence and qualifications. The Judicial Member noted that the provision of section 17(2)(iii) did not apply to the assessee as she was not an employee of the company but a director and shareholder. The addition was deemed unjustified and deleted.

Issue 2: Addition of Rs. 3,00,000 on account of unexplained expenditure on foreign travels:
The AO disallowed an estimated expenditure of Rs. 3,00,000 u/s 69C for a foreign visit where details were not furnished adequately. The assessee contended that the expenses were borne by her husband and that the visit was part of the overall foreign travel undertaken. The Ld. CIT(A) confirmed the addition due to lack of evidence. The Judicial Member found that the visit was already part of the assessee's foreign travel, and no separate addition should have been made. Consequently, the addition of Rs. 3,00,000 was also deemed unjustified and deleted.

Issue 3: Excessive nature of the additions confirmed by Ld. CIT(A):
The assessee argued that both additions were excessive, emphasizing that the expenses were borne by the company and not considered perks in her hands. The Judicial Member, after considering the submissions and relevant provisions, concluded that both additions were unwarranted and set aside the orders of the authorities below, deleting the additions of Rs. 5,00,000 and Rs. 3,00,000.

In conclusion, the appeal of the assessee was allowed, and both additions were deleted by the Judicial Member of the Appellate Tribunal ITAT Delhi.