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TMI Blog2008 (6) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the company in renovating the flats taken by the company, owned by the above two assessee Directors were considered. In the block assessment of Major R.C. Nanda an amount of Rs. 40,86,172 was considered as income under section 2(24)( iv ) and an addition was made which was deleted by the CIT(A), XXV, Mumbai vide his order dated 24-2-2003. Consequently the Department is in appeal in IT(SS) 361/M/2003. However, while completing the assessment of Shri Diwan R. Nanda under section 158BC a similar amount was not considered by the Assessing Officer and consequently CIT-VIII, Mumbai took the proceedings under section 263 and set aside the assessment to pass a fresh assessment order as per the provisions of law. This order of the CIT was upheld by the Tribunal in IT(SS) A. No. 247/M/2004 dated 9-5-2005. Pursuant to the directions issued by the CIT under section 263, the Assessing Officer included the above amount in the hands of Shri Diwan R. Nanda and this issue was carried in appeal to the CIT(A) XXIX who vide his order dated 28-10-2005 upheld the addition. Consequently the assessee is in appeal in IT(SS) 3/M/2006. This appeal was originally decided by the ITAT Mumbai Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accommodation and the company has taken the house on rent and spent amount of revenue nature to bring it to appropriate condition befitting the status of the Director and the assessee is paying Income-tax on all the perquisites. It was also contended that the alleged renovation expenses cannot be brought to tax in the block assessment by application of the deeming provision of section 2(24)( iv ) of the Act. The learned Assessing Officer did not agree with the contentions and made an addition of Rs. 40,85,172. 5. The learned CIT(A) vide his order referred above elaborately noticed the arguments of the assessee on pages 2 and 3 of the impugned order and thereafter taking into consideration the order of the CIT under section 263 formulated three points for consideration : ( i ) Whether particular receipt is an income? ( ii ) If it is an income whether it is an undisclosed income? and ( iii ) If it is an undisclosed income, whether it has been detected as a result of search? The learned CIT(A) considered the issue on the above points in detail and in a speaking order rejected all the contentions of the assessee and confirmed the addition. This in effect differ from the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT confirming the proceedings under section 263, order of ITAT dated 13-6-2004 in which the appeal in IT(SS) 03/M/2006 was originally decided and the order of the M.A. in which the findings were confirmed as such and submitted that the order of the ITAT originally passed still stands valid as there is no difference on the merits of the issue but was only recalled as the other appeal is pending on a similar matter and even though the order was recalled it was submitted that on merits the findings of the ITAT in the said order have not been differed, nor disapproved. Consequently relying on the order of the CIT(A) in the case of Diwan R. Nanda and the order of the ITAT confirming the proceedings under section 263 and further the orders earlier passed in IT(SS) 03/M/2006 the D.R. submitted that the benefit was obtained by the Directors from the company in the form of renovation expenses to their own apartments and the Assessing Officer is correct in invoking the provisions of section 2(24)( iv ) for bringing to tax the value of benefit obtained by the Directors from the company. With reference to deletion of incomes earned as salary for which returns were not filed in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures, equipments, etc., the details of which are as under : ( i )Furniture and fixture Rs. 36,52,870 ( ii )Equipments Rs. 6,64,050 ( iii )Consultancy charges Rs. 5,55,000 ( iv )Repairs and maintenance Rs. 76,17,344 Total Rs. 1,24,89,264 10. It was submitted that the first two items were movable assets taken as company s assets and the last two items are expenditure on renovation incurred in the books of account of the company. The learned A.R. drew our attention to the order of the Assessing Officer in the case of the company wherein these expenditures were considered as false expenses and the CIT(A) deleted the said additions. It was submitted that the expenditure was genuinely incurred by the company and these were now stands allowed under section 37(1) in the hands of the company as an expenditure. Hence treating the same as benefit or perquisites in the hands of the assessee does not arise. Further it was submitted that there is no case to consider in the block assessment as the rent-free accommodation was provided with effect from 1-4-2000 and the search having been conducted on 4-8-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar assessment, where the amount is already disclosed in the regular assessment and accepted; ( iv )Whether the entire repairs of Rs. 40,85,172 (half of total repairs of Rs. 81,70,344) can be added or only Perquisite value under section 2(24)( iv ) as directed by Mumbai ITAT in its Order dated 9-5-2005." 12. The Bench enquired about the composition of the Board of Directors and whether the two Directors have substantial interest in the company, it was clarified that the company Tops Detectives Security Services Ltd. is a deemed public limited company under the provisions of section 43A of the Companies Act and there are seven shareholders and six Directors out of which four are Directors referred to above, i.e., Chairman and Managing Director and their respective spouses are full time Directors as well and there are two other Directors in the Board. It was clarified further that these Directors being interested parties did not participate in the voting as stated in the minutes of the meeting. It was submitted that both the Directors are having substantial interest in the company and being closely held company provisions of section 2( 24 )( iv ) will apply to the extent th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er : "2. ****** (24) income includes ****** ( iv )the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid;" The provision included, within the definition of income, ( i )the value of any benefit or perquisite, whether convertible into money or not, obtained from a company ( a )either by a director, or ( b )by a person who has a substantial interest in the company [section 2( 32 ) defines such a person], or ( c )by a relative of the director or such person [section 2( 41 ) defines the term relative ], and ( ii )any sum paid by such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid. As can be seen from the above the first part of section 2( 24 )( iv ) refers to any benefit or perquisite obtained from a company either by a director or any pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any , in section 2( 24 )( iv ), qualify the words a person and not the words a director , and as such, it is not necessary for the amount to be treated as a benefit within the meaning of section 2( 24 )( iv ) that the director should have a substantial interest in the company. Even if the benefit received by the director of the company is of capital nature, it can also be brought under the term value of any benefit as contemplated under section 2( 24 )( iv ). The intention of the Legislature is to tax any benefit if it is received by a director, etc., irrespective of the fact whether the director is an employee-director or the benefit received was in the nature of capital, or whether there is any direct receipt in the transaction or whether there is any detriment to the company or not in the transaction. In the case of CIT v. S. Varadarajan [1997] 224 ITR 9 (Mad.) the difference between the fair market value of the buses transferred by a transport company to its director and the price paid of such transfer was assessable as income of the director by virtue of the provisions of section 2( 24 )( iv ). The Allahabad High Court has, in Lakshmipat Singhania v. CIT [1974 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors have obtained value of benefit in the form of repairs and renovation undertaken to the flats owned by them. Further it is also admitted that the expenditure was incurred by the company before 1-4-2000 and recorded in the books of account of the company. The issue is not whether the expenditure is recorded in the books of account or not nor whether the expenditure is allowable in the hands of the company or not. The issue is whether there is any benefit accruing to the Directors. The search has resulted in finding a bunch of papers involving expenditure and as seen from the order of the Assessing Officer under section 143(3) read with section 263 the following facts are recorded in para 6 of the order : "M/s. Tops Detectives Securities Pvt. Ltd. had incurred a total amount of Rs. 1.33 crores in respect of the Magnum Bungalow. Out of which, Rs. 1.24 crores was paid by the company under the following heads : ( i )Furniture and fixture Rs. 36,52,870 ( ii )Equipments Rs. 6,64,050 ( iii )Consultancy charges Rs. 5,55,000 ( iv )Repairs and maintenance Rs. 6,17,344 (76,17,344) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of funds from Tops Supercoins, a partnership firm, where the assessee is a partner. It is also seen from the records of the block assessment that the assessee, while furnishing explanation to the seized documents, have stated that the possession of the property was taken on October, 1999. It is a fact that the assessee has not filed the return of income for the assessment years 1997-98, 1998-99 and 1999-2000 prior to the search proceedings. From the above it is seen that the transaction of entering into the lease agreement is not a genuine transaction and the same was detected on the basis of the seized material. Therefore, the assessee s contention that the addition proposed to be made under section 2( 24 )( iv ) is not conceived from the seized material is incorrect and baseless." 17. As seen from the above, this information has come to the knowledge consequent to the search and it is an admitted fact that the assessees have not disclosed this benefit in any of the returns filed by them. They would not have filed this value of benefit as income as the same is being contested that the amount is not taxable. Therefore there is every reason that this amount has to be assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The second part talks of any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or any person referred to in this clause. The expression benefit employed in the above clause is in our opinion is of a wide connotation which would embrace in its fold any gain either monetarily or otherwise. There should be some element of advantage, profit or gain, such gain or value of such gain may be in terms of cash or in enjoyment. Even a benefit or perquisite enjoyed can be translated in terms of money so long as that benefit or perquisite is of material thing of life. Thus if we visualize the expenses incurred by the company on renovation of the residential flat of the director then it would reveal that it come within the ambit of any benefit or perquisite obtained by the assessee from the company. As far as computation of the quantum is concerned no dispute was raised before us, therefore, in our opinion sum of Rs. 40,85,172 is a benefit which is assessable as perquisite value in the hands of the assessee. 9. The next question arises for our adjudication is whether it is an undisclosed income and can be asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result in computation of loss for any previous year falling in the block period; or (B)on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; ( ca )where the due date for filing a return of income has expired, but no return of income has been filed, as nil , in cases not falling under clause ( c ); ( d )where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years, ( e )where any order of settlement has been made under sub-section (4) of section 245D, on the basis of such order; ( f )where an assessment of undisclosed income had been made earlier under clause ( c ) of section 158BC, on the basis of such assessment. Explanation. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly relatable to sections 132 and 132A. Similarly Hon ble Rajasthan High Court has explained the scope of block assessment and determination of undisclosed income in 248 ITR 350. The following observations are worth to note : However, under the scheme of the provisions for block assessment, it is apparent that it relates to assessment of undisclosed income of the assessee excluding the income subjected to regular assessment in pursuance of the returns filed by the assessee for such per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court had also an occasion to examine the concept of block assessment in 247 ITR 44, wherein it was found that an assessee had constructed a Bungalow and incurred an expenses of Rs. 4,16,000. Thereafter search was carried out and the Assessing Officer referred the valuation of the bungalow to the Departmental Valuer who determined the value of the property at Rs. 6,66,000 and the Assessing Officer added the difference to the income of the assessee as undisclosed income. The Tribunal has deleted the addition on the ground that addition was not made on the basis of the material gathered during the course of search rather all these information were available to the Assessing Officer at the time of regular assessment. He obtained the DVO s report subsequent to the regular assessment, therefore, addition is made beyond the scope of block assessment. The Hon ble Jurisdictional High Court upheld the deletion made by the Tribunal. 12. The ITAT Mumbai Bench in the case of Sunder Agencies 63 ITD 245 has made extremely lucid enunciation of law on the subject and we cannot do better than to extract some of the observations made in that decision. 23. There are adequate safeguard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1,24,89,264, out of that a sum of Rs. 81,72,344 was considered by the Assessing Officer towards repairs and consultancy on the flats. Apart from this assessee had received a fixed deposit of Rs. 23,70,000. Thus 50 per cent of the total amount i.e., Rs. 40,85,172 was incurred on furnishing the flat meant for the assessee. In the meeting of Board of Directors held on 21-4-1998 it was decided that rent-free accommodation would be given to the assessee and for that expenses towards renovation were incurred. So right from that date it was in the knowledge of the assessee that renovation expenses being incurred on his residential flat comes within the expression of benefit or perquisite employed in section 2( 24 )( iv ) of the Act. He has not filed the return for assessment years 1997-98, 1998-99 and 1999-2000 prior to the search proceedings. This fact has come to the notice of department only by virtue of search because bills have been seized indicating the renovation expenses on these flats. No doubt such expenses are being recorded in the books of the company and no addition was made but this fact was examined in the assessment year 2000-01 for which the return was filed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the order was recalled only because the other appeal of Major R.C. Nanda was pending and this fact was not brought before the Bench. As submitted by the CIT D.R. there is no reason to differ from such findings. We are also in agreement with the findings given in the said order extracted in para 18 and these should be read as part of this order as well. 21. In view of the discussion above, it is to be held that, ( i ) the Directors got benefit in the form of repairs and renovations to their own apartments at the cost of the company, and ( ii ) the amount is the value of benefit within the meaning of section 2( 24 )( iv ) and since the assessee has neither filed return of income nor paid any TDS on this amount or any advance tax brought to the notice of the department prior to the search, this amount is to be considered as undisclosed amount within the meaning of section 158BC and so assessing the same within the block is correct. We conform the orders of the Assessing Officer and the CIT(A) in this regard. Assessee s appeal in IT(SS) 03/M/2006 is, therefore, dismissed. IT(SS) 361/M/2003 22. Ground No. 1 as mentioned in para 8 pertains to the issue of bringing to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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