The Chennai Bench Income Tax Appellate Tribunal (ITAT) held that completion of assessment in the hand of the company is enough to prove the expense incurred for business and section 2(22) e cannot be invoked.
The Assessee, Shri. Gaurav Kumar Goenka filed his return of income electronically for the Assessment Year in question on 31.01.2011 admitting a total income of Rs.55,20,260/-. Subsequently, the case of the Assessee was selected under the category ‘Non-Filer’.
On the allegation that the Assessee has made credit card expenses to the tune of Rs.30,75,430/-, the case of the Assessee was reopened u/s.147 of the Income Tax Act, 1961 after getting prior approval from the Principal Commissioner of Income Tax – 9, Chennai.
The Assessing Officer found that the Assessee was having two Permanent Account Numbers [PAN] out of which one PAN No. AHRPK 3539J was used for filing the return of income and the other PAN No. ACWPG 1490L was utilized for the credit card.
The Assessee stated that it had happened due to an inadvertent error and that he obtained the credit card by using PAN No.ACWPG 1490L and that he has surrendered the PAN Number online many years ago and that he was continuously following it up for deactivation of the PAN Number [being PAN No.ACWPG 1490L].
The Assessing Officer treated the credit card expenses to the tune of Rs.30,75,430/- as unexplained expenses u/s.69C of the Income Tax Act, 1961, and added to the returned income of the Assessee. The Commissioner of Income Tax (Appeals) partly allowed the appeal of the Assessee and granted relief to the extent of Rs.26,66,240/- and the remaining amount of Rs.4,09,190/- was added to the income of the Assessee.
It was contended by the department that Section 2(22)(e) of the Income Tax Act, 1961 can only be invoked during the assessment of the company which is alleged to have made any payment benefiting the shareholders and that it cannot be invoked during the assessment of any shareholder who has alleged to have been benefitted with such a payment.
A Coram consisting of Shri G Manjunatha, Accountant Member, and Shri Sonjoy Sarma, Judicial Member found that the alleged credit card transaction had happened due to an inadvertent allotment of the PAN Number which he never used for filing the return of income but the same was reflected in his credit card expenses and the alleged transaction of Rs.30,75,430/- was treated by the Assessing Officer as unexplained expenses u/s.69C of the Income Tax Act, 1961.
It was observed that the assessment of the company, i.e. M/s. KGI Clothing Private Limited for the Assessment Year 2010 – 2011 was already done and it was completed way back on 25.02.2011. Since the completion of the assessment was in the hands of the company, it is clear that the alleged expenses incurred by the Assessee were business expenses of the company and no personal benefit accrues to the Assessee as alleged by the authorities below.
The Tribunal allowed the appeal of the Assessee. Mr. N. Arjunraj, C.A. appeared for the appellant, and Mr. A.S. Sumanth appeared for the respondent.
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