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Burden of Proof Lies On Assessee That He/She Is Employee of the Firm: Madras High Court

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Excerpt

An Appeal was filed under Section 260A of the Income Tax Act, 1926. It challenged the order of the Income Tax Appellant Tribunal of Madras, dated 28.08.20112 for the Assessment Year 2005-2006.

Facts

The Assessee filed a return of income on 31.10.2005, admitting a total income of Rs. 6,33,20,125. The Assessment was completed under Section 143(3) of the Income Tax Act on 31.12.2007. The Assessment authority while completing the assessment along with other additions had disallowed the foreign travel expenses of Rs. 3,36,739. It was incurred in the respect of Mrs Sweta Reddy who was alleged to be an employee of the company on the ground that she was the wife of the Appellant. The Assessing Officer had also disallowed the expenses incurred by the Appellant for foreign travel to the tune of Rs.4,26,617 as against the total amount of Rs.21,33,088 that was claimed. The basis of the disallowance was that Mrs Swetha Reddy had accompanied the Assessee on most of the trips and accordingly the Assessing Officer assumed that a certain amount of personal expenditure would be involved. The Assessee contended that all foreign visits made were for business marketing. The expenses were wholly allowable under Section 37 of the Income Tax Act. However, the Assessing Officer had disallowed the claims made under section 37(1) apart from making other additions

Challenging the order passed by the Assessing Officer, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax also confirmed the order passed by the Assessing Officer, disallowing the expenses incurred on foreign travel of the Appellant as well as Mrs Swetha Reddy.

Aggrieved over the order passed by the Commissioner of Income Tax (Appeals), the Assessee filed another appeal before the Income Tax Appellate Tribunal. The Tribunal also confirmed the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal

The Assessee has filed the above appeal with distress caused by the decisions of the authorities.

The appeal involved the following questions of law:

  1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the disallowances made on account of the expenditure incurred and claimed on foreign travel under Section 37 of the Income Tax Act by the employee of the firm Mrs Swetha Reddy?
  2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the order of the lower authorities to the effect that the expenses incurred on foreign travel and claimed by the Appellant under Section 37 of the Act be restricted to 1/5th of the total amount claimed?”

Arguments

The Appellant contended that though the Assessee had produced the details of the salaries, bonus, and group gratuity in respect of Mrs Swetha Reddy for the financial year 2004-2005. The authorities have not considered the same and erroneously concluded that she was not an employee of the firm. 

The Appellant also argued that when the Assessee had produced the documents as to the salaries, bonus, and group gratuity received by Mrs Swetha Reddy, the Tribunal and the Commissioner of Income Tax(Appeals) should have accepted the case of the Assessee and allowed the Appeal

However, on the contrary, the Respondent submitted that the Assessee has not produced any salary certificate of his wife Mrs Swetha Reddy to establish that she was an employee of the firm. The assessee had also not raised any substantial question of law about non-consideration of the alleged documents produced before the Assessing Officer.

Court’s Observation

The Court had observed that the Tribunal has categorically stated that at the time of hearing the appeal, Assessee had filed the P.F. and ESI details relating to the Assessment Years 1994-1995 and 2004-2005. The said details were not filed either before the Assessing Officer or before the Commissioner of Income Tax(Appeals

As observed by Tribunal, no application was filed before the Tribunal to admit the said documents. The evidence filed was insufficient to prove that Mrs Swetha Reddy was an employee of the firm. The reason being there was nothing on record to establish as to when she was appointed or what her salary was etc

The court opined that the burden lies on the Assessee to establish that Mrs Sweta Reddy is an employee of the firm. The Assessee should have produced sufficient documents to establish the same. Also, whether Mrs Swetha Reddy was an employee of the firm or not is a question of fact. It was a matter for evidence and the same was decided against the Assessee by the Tribunal as well as by the Commissioner of Income Tax(Appeals) and the Assessing Officer.

In the Assessment Order, though the Assessee contended that Mrs Swetha Reddy went aboard as a Marketing Executive, she has not produced any document to prove that her visit was exclusively for business purposes. Further, the Assessing Officer observed that since Mrs Swetha Reddy had accompanied the assessee on several occasions, the element of the personal tour cannot be denied. It was not the case of the Assessee that there was perversity in the order passed by the Income Tax Appellate Tribunal, Commissioner of Income Tax(Appeals), and the Assessing Officer.

Court’s Decision

The Court held that there was no ground much less any substantial question of law to interfere with the order passed by the Income Tax Appellant Tribunal and other authorities. Thus, the Tax Case Appeal was dismissed.  

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