2024 (12) TMI 494 - AT - Income Tax

Assessment of salary under the head income from other sources - action of the Ld. AO to assess salary under the head income from other sources results some disallowance; viz, standard deduction, value of perquisite, disallowance of HRA, conveyance allowances, etc. - HELD THAT - Admittedly, the company is a juristic person and it is governed by the board of directors and is altogether an independent entity other than the directors. The appellant/assessee had 13.8% shares of D-Art Furniture System Pvt. Ltd. and supervises sales only. He received fixed remuneration for that. The said remuneration is not linked with the profit of D-Art Furniture System Pvt. Ltd. Director involved certain kind of responsibility to be carried out in terms of his appointment whether specified or not. Board of Directors has a right to appoint. It has right to determine the nature of the duties to be performed by the whole-time directors. It has right to determine the salary to be paid. Therefore, the company could be an employer while appointing one of its directors as whole-time director on a particular remuneration and prescribing the terms and conditions of his appointment. In common parlance, the whole-time director may not be an employee but even then the character of the receipt or remuneration having come within the definition of salary under section 17(1)(iv) being a fee or remuneration by whatever name it is called and not being excluded by the Explanation 2 to section 15. Assessee had a dual capacity. He was entrusted to manage the business. The appointment was of employment and not for employment. Therefore, having regard to the material placed before us, we are of the considered view that the appellant/assessee s receipt is assessable under the head 'Salary'. Therefore, the remuneration received by the appellant/ assessee have to be assessed income under the head 'Salary' and not as income from other sources. Accordingly, we order so for both years. AO is further directed to allow deduction of conveyance allowance and HRA, as per the law, in AY 2010-11. We are of the considered view that there is no rationale and justification for addition in AY 2011-12 under the head income from other sources. Accordingly, we delete the addition made in AY 2011-12. Addition of bank deposit - We find merit in the Ld. AR submission that this bank deposit was nothing but the deposit of the sale consideration received on sale of 2nd floor of one of the properties as the cheque from which the sale consideration received is found mentioned in the sale deed dated 29.04.2009 and also in the bank passbook. CIT-DR was not able to contradict the argument of the AR with the help of any evidence. We, therefore, are of the considered view that the bank deposit in AY 2010-11 is explained and thus, the same is deleted. Disallowance of business expenditure - appellant/assessee had failed to produce not only the bills vouchers of these expenditures but also failed to establish genuineness such expenditures - HELD THAT - We find merit in the Ld. CIT-DR s submission that the Ld. AR had not brought any material on the record to contradict the finding of the CIT(A). We have perused the Paper Book and find that it contains only the ledger accounts of various heads of business expenditures. The office note of the assessment order also says so. AR had not brought any material to contradict the finding of the lower authorities. Therefore, we are of the considered view that this issue for both years requires restoration back to the AO for deciding it afresh.

Summary

Issues Involved:

1. Assessment of salary under the head "income from other sources."
2. Unexplained bank deposits for AY 2010-11 and AY 2011-12.
3. Disallowance of business expenditure for AY 2010-11 and AY 2011-12.

Detailed Analysis:

1. Assessment of Salary as Income from Other Sources:

The primary issue was whether the salary received by the appellant/assessee should be assessed under the head "salary" or "income from other sources." The Assessing Officer (AO) had assessed the salary under "income from other sources," arguing there was no employee-employer relationship between the appellant/assessee and the companies involved. The appellant/assessee contended that he held only 13.8% shares in D-Art Furniture System Pvt. Ltd. and was not a major shareholder in ESAJV D-Art Indo India Pvt. Ltd., thus asserting the existence of an employee-employer relationship. The Tribunal found that the AO failed to provide evidence supporting the absence of such a relationship and noted that the remuneration was fixed and not linked to company profits. Consequently, the Tribunal ruled that the salary should be assessed under the head "salary," allowing for deductions like conveyance allowance and HRA.

2. Unexplained Bank Deposits:

For AY 2010-11, the AO treated a bank deposit of Rs.7,00,000/- as unexplained. The appellant/assessee argued that this was the sale consideration from a property transaction, supported by a sale deed and bank records. The Tribunal found merit in this explanation and deleted the addition, as the Revenue did not provide contradictory evidence.

For AY 2011-12, the AO added Rs.15,00,000/- as unexplained deposits. The appellant/assessee claimed these were loans from two companies, which were repaid later. However, the Tribunal noted the failure to establish the creditworthiness and genuineness of these loans. The Tribunal remanded the issue back to the AO for fresh consideration, directing the appellant/assessee to provide necessary documentation.

3. Disallowance of Business Expenditure:

The AO disallowed significant portions of business expenditure for both assessment years due to a lack of supporting evidence. The appellant/assessee claimed these expenditures were genuine and paid through banking channels. However, the Tribunal noted that the appellant/assessee failed to produce bills, vouchers, or any primary documents to substantiate the claims. The Tribunal upheld the CIT(A)'s decision but remanded the issue back to the AO for a fresh decision, directing the appellant/assessee to furnish all relevant details and documents.

Conclusion:

The Tribunal partly allowed the appeals, directing the AO to reassess certain issues with the cooperation of the appellant/assessee in providing necessary documentation. The salary was to be assessed under the head "salary," while the issues of unexplained deposits and business expenditure were remanded for further examination.