2019 (6) TMI 774 - AT - Income Tax

Allowances for duty performance qualify for exemption under Income Tax Act when wholly necessary

The Tribunal allowed the appeals of the Assessees, emphasizing that expenses must be wholly and necessarily incurred for duty performance to qualify for ... Exemption u/s 10(14) - assessee has received fixed conveyance allowance and conveyance expenses - assessee argued allowances are fixed allowances and paid by the employer after being satisfied that the amounts were spent wholly for the purpose of carrying out the duties - AO is of the opinion that the assessee is failed to prove the conditions laid down in section 10(14), therefore, the claim of the assessee is disallowed - HELD THAT:- Exemption claimed by the assessee needs favourable consideration. As decided in THOTA SRINIVASA BABU AND AVADHANULA SRINIVASA RAO VERSUS ITO, WARD-1, PALKOL [2018 (11) TMI 552 - ITAT VISAKHAPATNAM] unless a case has been initiated against an employee by an employer, the said presumption that the employee has incurred the expenditure for which it is granted, will apply and it will not be necessary for the employees to submit accounts every month to the employer and along with return to the assessing authority. If, in such matters, filing of the accounts and vouchers/receipts are insisted upon to claim exemption under section 10(14) of the Act by the Income-tax authorities, it will lead to voidable waste of time and expenditure and would serve no useful purpose but on the contrary it would be counter-productive. Exemption claimed by the assessee has to be allowed. Issues:Appeal against Commissioner of Income Tax (Appeals) orders on exemption u/s 10(14) of the Income Tax Act, 1961 for development officers in Life Insurance Corporation of India.Analysis:1. The Assessee's appeals were filed against the Commissioner of Income Tax (Appeals) orders dated 26.09.2018 and 15.10.2018. The appeals were clubbed together due to identical facts. The Assessees, development officers at LIC, declared their income, including various allowances. The Assessing Officer (AO) reopened assessments u/s 147, disallowing exemption u/s 10(14) for allowances, leading to reassessment.2. The AO found the allowances taxable as they were paid by LIC and TDS was deducted. The Assessees claimed the exemption u/s 10(14), stating the amounts were spent on business-related travel. However, the AO held the Assessees did not meet conditions for exemption u/s 10(14), requiring special allowance, not a perquisite, for expenses wholly and exclusively incurred in duties, and a notification by the Central Government. Consequently, the AO added to the total income.3. The Assessees appealed to the CIT(A), who dismissed the appeals, stating the exemption was not applicable as per Rule 2BB. The Assessees then approached the Tribunal, arguing the allowances were fixed and wholly spent on duties, citing relevant case laws supporting their claim. The Department supported the lower authorities' orders.4. The Tribunal, considering the case of Avadhanula Srinivasa Rao, allowed the appeal based on precedent. Referring to the High Court's observations, the Tribunal emphasized that if expenses were incurred wholly for duty performance, the exemption could be granted without submitting accounts monthly. The Tribunal found the AO's reliance on a different case law regarding incentive bonus not applicable to the present case, thus allowing the appeals.5. During the appeal hearing, the Department did not present any contradictory case law. Given the identical facts and the High Court's decision, the Tribunal concluded in favor of the Assessees, setting aside the CIT(A)'s orders and allowing the appeals.6. Ultimately, the Tribunal allowed the appeals of the Assessees, emphasizing the importance of expenses being incurred wholly and necessarily for duty performance to qualify for exemption u/s 10(14) of the Income Tax Act, 1961.