No Employer-Employee Relationship, No Perquisite Tax: ITAT

In a major relief to Ajay Kumar Singh (Appellant), the Delhi Income Tax Appellate Tribunal (ITAT) has quashed the revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act for Assessment Year 2019-20.

The case arose after a search operation conducted on March 9, 2022, at the premises of the assessee. During the search, jewellery purchase bills worth about Rs 31,28,131 were recovered. Initially, the AO had added only Rs 1,92,650 to the assessee’s income, treating it as unexplained expenditure and taxable as a perquisite under Section 17(2) of the Act.

Later, the PCIT held that the AO had failed to tax the remaining Rs. 29,35,981 spent on jewellery purchases. According to the PCIT, the assessment order was “erroneous and prejudicial to the interests of the Revenue” because the full amount should have been added to the assessee’s income. Based on this, revision proceedings under Section 263 were initiated.

The assessee then approached the Tribunal; during the hearing, the assessee argued that the jewellery purchases were actually made by Ajayvision Education Private Limited and not by him personally. It was submitted that the company had used unaccounted cash generated through bogus billing for these purchases and that the jewellery was meant for employees and associated persons of Vision IAS. The assessee also pointed out that no physical jewellery was found during the search; only bills were recovered.

The assessee further argued that the amount could not be taxed as a “perquisite” under Section 17(2) because there was no employer-employee relationship established between him and the company. He also claimed protection under Section 10(10CC) of the Income Tax Act.

After hearing both sides, the ITAT observed that while the jewellery bills were indeed found at the assessee’s premises, the Revenue had failed to establish any employer–employee relationship between the assessee and the company. The Tribunal accepted the contention that the expenditure had been incurred by the company and not by the assessee in his personal capacity.

The Tribunal stated that, “In such a factual matrix, the invocation of the provision of section 17(2) of the Act, to treat the expense on the purchase of jewellery, as perquisite in the hands of the assessee is unjustified.”

Consequently, the ITAT cancelled the PCIT’s revision order under Section 263 and allowed the assessee’s appeal.