2024 (1) TMI 748 - AT - Income Tax

Power of CIT(A) enhancing income - Nature of expenditure - unexplained expenditure u/s 69C OR perquisite payment made on behalf of its Director u/s 17(2) - HELD THAT - Once it is proved that the said expenditure is reflected in the books of Spring Travels Pvt. Ltd. and sourced out of regular banking channels from the funds of the said company, the same cannot be added an unexplained expenditure in the hands of the assessee u/s 69C of the Act. But what has been done by the Ld. CIT(A) is treating the very same sum as perquisite in the hands of the assessee on the premise that the said expenditure has been incurred by M/s Spring Travels Pvt. Ltd. on behalf of its director u/s 17(2) of the Act. This in our considered opinion, becomes a new source of income which CIT(A) is not entitled to add/enhance under the powers provided to him under the statute. In any event, the Ld.CIT(A) had also not given any enhancement notice to the assessee proposing to shift the addition from unexplained expenditure u/s 69C of the Act to perquisite u/s 17(2) of the Act, thereby violating the requirements of provisions of section 251(2) of Act. Hence, in any case, the addition made by the Ld. AO and sustained by the Ld. CIT(A) are on different count and deserves to be deleted. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues Involved:
The judgment involves appeals arising from orders of the Commissioner of Income Tax (Appeals) against assessment orders passed by the Assistant Commissioner of Income Tax for Assessment Years 2013-14 and 2014-15 under the Income Tax Act, 1961.

Issue 1: Unexplained Expenditure
The assessee declared income in the original return, but a search and seizure action revealed discrepancies. The seized document indicated an expenditure of Rs. 30,753 paid to HDFC, which the AO treated as unexplained expenditure under section 69C of the Act. The assessee contended that the expenditure was actually paid by M/s Spring Travels Pvt. Ltd. and supported this claim with the company's bank statement.

Issue 2: Treatment of Expenditure
The Commissioner of Income Tax (Appeals) acknowledged that the expenditure was paid by M/s Spring Travels Pvt. Ltd. and considered it a payment made on behalf of its Director under section 17(2) instead of treating it as unexplained expenditure under section 69C of the Act. The Commissioner's decision was based on the source of funds and regular banking channels used for the payment.

Judgment:
The Appellate Tribunal found that the expenditure of Rs. 30,753 was indeed paid by M/s Spring Travels Pvt. Ltd. through regular banking channels and claimed as business promotion expenses by the company. The Tribunal disagreed with the AO's classification of the expenditure as unexplained in the hands of the assessee under section 69C. The Tribunal also criticized the Commissioner for treating the sum as a perquisite in the hands of the assessee under section 17(2) without proper authority or notice to the assessee. Consequently, the Tribunal allowed the appeals filed by the assessee, noting that the decision for one assessment year applied equally to the other due to identical facts.

Separate Judgment:
No separate judgment was delivered by the judges in this case.