2023 (12) TMI 638 - AT - Income Tax

Assumption of jurisdiction u/s. 154 by AO - denial of deduction on account of Sumptuary Allowance for computing the income from Salary - assessee is an individual and is an employee under the West Bengal Judicial Services - HELD THAT - AO has referred to the CBDT instruction dated 24.09.1966 in order to treat sumptuary allowance as entertainment allowance and made the said adjustment. Since the facts relating to sumptuary allowance is appearing in the revised return itself and it was not any new information but for computing the correct income and also for rectifying the apparent mistake committed while framing the assessment, ld. AO has made the said adjustment u/s 154 of the Act. We are therefore, of the view that legal issue raised by ld. Counsel for the assessee has no merit and hence, ground nos. 1 2 are accordingly dismissed. Merits of the case as observed that assessee has relied on the decision of Shri Ajay Godara vs. ITO 2018 (6) TMI 1845 - ITAT JAIPUR wherein similar issue of sumptuary allowance was for consideration and this Tribunal held that sumptuary allowance is exempt from payment of tax - Thus we are inclined to hold in favour of the assessee and delete the addition. Assessee appeal is partly allowed.

Summary

Issues involved:
The issues involved in this case are whether the Assessing Officer was justified in assuming jurisdiction under section 154 of the Income Tax Act for denying the deduction of sumptuary allowance, and whether sumptuary allowance is taxable.

Summary:
In this case, the appeal was filed by the assessee against the order passed by the Commissioner of Income-tax (Appeals) pertaining to the Assessment Year 2011-12. The assessee raised grounds challenging the denial of deduction of sumptuary allowance and the disallowance of the claimed deduction. The main contentions were that the AO did not have jurisdiction to make the adjustment and that the sumptuary allowance should be exempt from tax.

Upon review, it was found that the AO had made the adjustment based on a CBDT instruction from 1966 regarding the treatment of sumptuary allowance as entertainment allowance. The Tribunal observed that the rectification made by the AO was to correct an apparent mistake in the assessment and was therefore valid. The legal issue raised by the assessee was dismissed, and the grounds were accordingly rejected.

Regarding the merits of the case, the Tribunal referred to a decision by the ITAT Jaipur which held that sumptuary allowance is exempt from income tax based on the CBDT clarification. As the Revenue failed to provide any decision in their favor, the Tribunal ruled in favor of the assessee, deleting the addition of the sumptuary allowance and allowing the grounds raised by the assessee.

In conclusion, the appeal filed by the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the issue of sumptuary allowance.