2019 (3) TMI 72 - AT - Income Tax

Reopening of assessment - assessment reopened after expiry of four years - scrutiny assessment u/s 143(3) has been made - non-disclosure of facts fully and truly - Certain expenses disallowed in case of company being personal nature - perquisite value of this expenditure in hand of director - Interest free loan provided by company to Director not having substantial interest - notional interest will became perquisite value in hand of director - live-link between formation of opinion showing escapement of income vis- -vis information available with the AO. - disallowance of Advertisement expenses - HELD THAT - There cannot be any benefit of personal nature in advertisement expenditure. Similarly, printing and stationery expenses were related to the company. Out of the above expenditure, how it could be construed that element of personal nature is involved, and its perquisite value in the hands of the Director. The AO has not analysed details of these expenditure while forming a belief that income has escaped assessment. Taking into consideration nature of expenditure, we are of the view that there was no specific expenditure which can be termed as incurred exclusively for the personal needs of the Directors. If company wants to pay taxes, that is its discretion, but for that a completed assessment of the director after four years cannot be reopened. Availment of loans from two companies without paying interest - HELD THAT - Assessee was having share holding of 9% and 4.3% in the aforesaid two companies viz. Umnesh Complex PLtd., and Mihika Buildcon P.Ltd. He was not having substantial interest in these companies. It was brought to the notice of the ld.CIT(A) that assessee has not obtained any loan from Mihika Buildcon P.Ltd. during this year. It was opening balance. As contended that non-charging of interest on the debit balance in the running account of the directors would not constitute a perquisite. Judgment of Hon ble Supreme Court in the case of V.M. Salgaocar & Bros. Pvt. Ltd. Vs. CIT 2000 (4) TMI 2 - SUPREME COURT was pressed into service. Again, though the AO has to form a prima facie belief only, but has not analysed any of these details while forming a belief that income has escaped assessment, more particularly, when he is leveling allegations that it was escaped on account of non-disclosure of facts fully and truly. To our mind, the AO has not demonstrated this aspect in the reasons recorded by him. Personal expenses disallowance in hand of company - perquisite value in hand of director - HELD THAT - CIT(A)has made a detailed analysis of all the expenditure, and thereafter recorded a finding that there is no personal element involved in all these expenditure. They cannot be considered as perquisite in the hands of the director. After going through well reasoned order of the ld.CIT(A), we do not find any error on this issue. It is upheld. Non charging interest from the assessee on loan extended by companies - treated as perquisite in the hands of the assessee under section 2(24)(iv) - HELD THAT - As observed by the ld.CIT(A) that there is no fresh loan taken by the assessee from Umnesh Complex PLtd., and Mihika Buildcon P.Ltd. It is an opening balance. No interest was charged in earlier years nor any perquisite value was assessed. Similarly, the CIT(A) has observed that if the directors have running account with the company, then non-charging of interest on the debit balance would not constitute a perquisite. The ld.CIT(A)has made reference to large number of decisions while taking note of assessee s submissions at page nos.39 to 41 of the impugned order. After going through the finding of the ld.CIT(A) we do not find any error in the order of the ld.CIT(A)

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 143(3) read with section 147 of the Income Tax Act, 1961.
2. Deletion of addition of ?26,79,366/- as perquisite value in the hands of the assessee.
3. Deletion of addition of ?47,77,455/- as perquisite value for interest-free loans.

Detailed Analysis:

1. Validity of the Reopening of Assessment:
The Revenue appealed against the quashing of the re-assessment order by the CIT(A). The original assessment was completed under section 143(3) on 23.12.2010, with no additions made to the declared income. The AO reopened the assessment based on findings from the audit of Ganesh Housing Corporation Ltd. (GHCL), where the assessee was a director. The AO noted that GHCL disallowed ?80,38,101/- as personal expenditure, which should have been reflected as perquisite in the assessee's income. The AO also noted that the assessee had taken interest-free loans from two companies, which should have been treated as income. The CIT(A) quashed the re-assessment, stating that the reopening was beyond four years, and there was no failure on the part of the assessee to disclose material facts fully and truly. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to analyze the nature of the expenditure and establish a direct link between the information and the alleged escaped income.

2. Deletion of Addition of ?26,79,366/-:
The AO added ?26,79,366/- to the assessee's income as 1/3rd of ?80,38,101/- disallowed by GHCL, treating it as perquisite. The CIT(A) analyzed the nature of the disallowed expenditure, which included advertisement expenses, printing and stationery, and books and magazines. The CIT(A) concluded that these expenditures were not of personal nature and did not benefit the assessee personally. The Tribunal agreed with the CIT(A), noting that the expenditures were for the benefit of GHCL and not the assessee, thus, they could not be treated as perquisites in the hands of the director.

3. Deletion of Addition of ?47,77,455/-:
The AO added ?47,77,455/- to the assessee's income, treating it as notional interest on interest-free loans taken from Umnesh Complex Pvt. Ltd. and Mihika Buildcon Pvt. Ltd. The CIT(A) deleted the addition, observing that the assessee was not an employee of these companies and did not receive any remuneration or salary. The assessee also did not have substantial interest in these companies. Furthermore, the loans were opening balances from previous years, and no fresh loans were taken during the assessment year. The Tribunal upheld the CIT(A)'s decision, noting that non-charging of interest on the debit balance in the running account of the directors does not constitute a perquisite.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s quashing of the re-assessment order and deletion of the additions. The Tribunal emphasized the lack of analysis and evidence by the AO to substantiate the claims of escaped income and personal benefit. The decision reinforces the necessity for the AO to establish a clear and direct link between the alleged escaped income and the information available before reopening an assessment.