1997 (3) TMI 613 - AT - Income Tax

Reassessment ruled invalid, no taxable perquisite found, interest charges canceled.

M.M. Ratnam Versus Income-tax Officer

M.M. Ratnam Versus Income-tax Officer - [1997] 62 ITD 21 (MUM.) Issues Involved:1. Validity of initiation of proceedings u/s 147.2. Taxability of the perquisite amounting to Rs. 32,34,000.3. Determination of the value of the perquisite.4. Levy of interest u/s 234A, 234B, and 234C.Summary:1. Validity of initiation of proceedings u/s 147:The assessee contested the initiation of proceedings u/s 147, arguing that the Assessing Officer (AO) lacked material or information to believe that income had escaped assessment. The AO initiated proceedings based on information from the Deputy Director of Income-tax (Exemptions) (DDI(E)) regarding the undervaluation of a flat sold to the assessee. The Tribunal held that the information from DDI(E) was based on assumptions without jurisdiction or technical knowledge to determine the flat's market value. The AO failed to apply his mind, and thus, the reassessment proceedings were deemed invalid and void ab initio.2. Taxability of the perquisite amounting to Rs. 32,34,000:The assessee argued that the transfer of the flat was a commercial transaction based on a verbal agreement in 1981, not an employment-related benefit. The Tribunal examined the facts, including the Council's resolution and an affidavit from the then Vice-Chairman, concluding that the transfer was a commercial transaction. Consequently, no perquisite accrued to the assessee, and the amount was not taxable as a perquisite.3. Determination of the value of the perquisite:The Tribunal discussed whether the transaction was completed in 1981 or 1988. It concluded that the agreement to sell the flat was completed in 1981, and the valuation of any perquisite should be based on the market value in 1981, not 1988. The DDI(E) and AO lacked jurisdiction to determine the market value independently.4. Levy of interest u/s 234A, 234B, and 234C:The assessee contended that if any perquisite was taxable, it was subject to tax deduction at source, and the assessee should not be liable for advance tax. The Tribunal agreed, stating that the employer was responsible for deducting tax at source, and the assessee could not be held liable for advance tax. Consequently, the interest charged u/s 234A, 234B, and 234C was canceled.Conclusion:The Tribunal declared the reassessment proceedings void ab initio, held that no perquisite accrued to the assessee due to the flat transfer, and canceled the interest charged u/s 234A, 234B, and 234C. The appeal was allowed in favor of the assessee.