2002 (2) TMI 310 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the penalty imposed under section 271(1)(c) of the Income-tax Act.
2. Determination of whether the medical expenses incurred by the employer for the assessee's treatment abroad should be treated as taxable perquisites.
3. Examination of the assessee's bona fide belief in claiming exemption on medical expenses.

Detailed Analysis:

1. Legality of the Penalty Imposed under Section 271(1)(c):
The appeal by the Revenue challenges the order of CIT(A) cancelling a penalty of Rs. 60,215 levied under section 271(1)(c) of the Income-tax Act for the assessment year 1992-93. The penalty was initially imposed by the Assessing Officer on the grounds that the assessee had deliberately not shown certain perquisites in his income, thereby evading tax. The CIT(A), however, found that the assessee had acted bona fide and cancelled the penalty.

2. Determination of Whether the Medical Expenses Should Be Treated as Taxable Perquisites:
The assessee, who was the Managing Director of a company, had medical expenses amounting to Rs. 6,27,107 incurred by his employer for treatment in America. Out of this, Rs. 1,55,362 was treated as a perquisite and part of the salary subjected to tax deduction at source. The assessee claimed these medical reimbursements as exempt in his return, citing section 17(2)(vi)(1) of the Income-tax Act and a decision by the ITAT, Jaipur Bench, which held that such expenses could not be treated as perquisites.

The Assessing Officer, however, did not accept this claim, noting that an amendment to section 17 from the assessment year 1992-93 specified that such expenses should be treated as perquisites. Consequently, the Assessing Officer brought the amount of Rs. 1,07,530 to tax as perquisite income.

3. Examination of the Assessee's Bona Fide Belief in Claiming Exemption:
The CIT(A) found that the assessee had acted in good faith based on a reasonable belief that the medical expenses were exempt, supported by a previous ITAT decision. The assessee had disclosed all relevant facts and cooperated with the tax authorities. The CIT(A) concluded that no penalty was exigible under Explanation I to section 271(1)(c) of the Income-tax Act.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had a bona fide belief in the exemption of medical expenses. The Tribunal noted that the assessee had provided all necessary documentation and had not concealed any material facts. The Tribunal also highlighted that the deduction of tax at source by the employer was not conclusive evidence of concealment or furnishing inaccurate particulars of income.

The Tribunal further reasoned that the provisions of the Income-tax Act are complex and open to interpretation, and the assessee's interpretation was reasonable. The Tribunal cited the Supreme Court's decision in Cement Marketing Co. of India Ltd. v. Asstt. CST, which held that a bona fide belief in not including an item in taxable turnover does not constitute a false return inviting penalty.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified and upheld the CIT(A)'s order cancelling the penalty. The Revenue's appeal was dismissed.