2013 (4) TMI 117 - HC - Income Tax

Fixation of net profit rate - Business perquisite - Deemed profit accrued U/s 28(iv) (foreign travel expenses ) - Held that - even though the Appellate Tribunal had concurred with the findings of the first appellate authority on consideration of the materials and records produced by the assessee and the Revenue on factual aspects, it erred in fixing the net profit percentage at 4 percent for all the three years. We feel that a net profit percentage of 3 percent for all the three years would be proper and reasonable and accordingly modify the order of the Appellate Tribunal to this extent. Regarding Foreign Trip - business perquisite - Held that - the perquisites of business are taxable under clause (iv) of Section 28 of the Act, which contemplates that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to income tax under the head profits and gains of business or profession we set aside the orders of the lower authorities only insofar as the determination of Rs.5,00,000/- in the absence of any details furnished by the assessee and remit the matter to the assessing officer to arrive at the quantum on the basis of materials/details furnished by the assessee in this regard. Such exercise shall be done in any case within a period of two months from the date of receipt of a copy of this order. - however, no materials have been either produced before the lower authorities or before us as to the basis on which the amount of Rs.5,00,000/- has been arrived at - matter remanded back for limited purpose for determination of correct amount to be added u/s 28(iv). - Decided partly in favor of assessee.

Summary

Issues:
1. Net profit rate determination for assessment years 1996-97, 1997-98, and 1998-99.
2. Taxability of foreign travel expenses under Section 28(iv) of the Income Tax Act.

Analysis:

Issue 1: Net Profit Rate Determination
The appellant, a sole proprietrix of a firm dealing in electronic appliances, challenged the assessment by the Income Tax Officer, who applied a gross profit rate of 19.735 percent, significantly higher than the appellant's claimed rate of 3 to 5 percent. The assessing officer also added a deemed profit under Section 28(iv) for foreign travel expenses. The first appellate authority considered various factors and set the net profit rate at 5 percent for the assessment years. The Appellate Tribunal, however, reduced the net profit rate to 4 percent for all three years. The High Court reviewed the case and concluded that a net profit rate of 3 percent would be proper and reasonable for the assessment years 1996-97, 1997-98, and 1998-99, modifying the Tribunal's decision accordingly.

Issue 2: Taxability of Foreign Travel Expenses
The assessing officer treated the foreign travel expenses met by outsiders as a perquisite received by the appellant, taxable under Section 28(iv) of the Act. The first appellate authority disagreed, considering such benefits as gratis and not income. On appeal, the Appellate Tribunal upheld the assessing officer's decision, stating that business perquisites are taxable under Section 28(iv). The High Court concurred with the taxability of business perquisites but noted the lack of details regarding the specific amount of Rs.5,00,000 determined as a perquisite. Therefore, the Court upheld the taxability of business perquisites but remitted the matter back to the assessing officer for a proper determination based on furnished details within two months.

In conclusion, the High Court modified the net profit rate determination to 3 percent for the relevant assessment years and upheld the taxability of business perquisites while remitting the specific quantum determination back to the assessing officer for further review.