Case Law Details
Ajay Kumar Singh Vs PCIT (ITAT Delhi)
Revision under section 263 is not sustainable where the very basis adopted by the PCIT fails, namely, that jewellery expenditure incurred by a company could be taxed as a perquisite in the hands of an individual without establishing an employer-employee relationship.
Summary: Income Tax Appellate Tribunal (ITAT), Delhi, allowed the appeal of an assessee against the revisionary order passed under Section 263 of the Income Tax Act for AY 2019-20. The case arose after a search operation in which jewellery purchase bills amounting to Rs. 31.28 lakh were found at the assessee’s premises. The Assessing Officer had initially added only Rs. 1.92 lakh as unexplained jewellery expenditure under Section 17(2). Subsequently, the Principal Commissioner of Income Tax held that the balance amount of Rs. 29.35 lakh should also have been added as perquisite income and treated the assessment order as erroneous and prejudicial to the interests of revenue. The assessee contended that the jewellery purchases were made by Ajayvision Education Pvt. Ltd. out of unaccounted cash generated through bogus billing and that no employer-employee relationship existed between the company and the assessee for invoking Section 17(2). It was also argued that only bills were found during the search and no physical jewellery was recovered. The Tribunal observed that the expenditure on jewellery had been incurred by the company and agreed that the PCIT failed to establish any employer-employee relationship between the assessee and the company. Accordingly, the Tribunal held that treating the expenditure as a taxable perquisite in the hands of the assessee was unjustified. It concluded that the reassessment order was neither erroneous nor prejudicial to the interests of the revenue and quashed the proceedings initiated under Section 263.
Issue: Whether the PCIT was justified in invoking section 263 on the ground that jewellery purchase bills aggregating to ₹31,28,131 should have been assessed as a perquisite under section 17(2) in the hands of the assessee.
Facts: During search proceedings, only jewellery bills were found at the assessee’s premises; no physical jewellery was recovered. The expenditure had been incurred by Ajayvision Education Pvt. Ltd. out of unaccounted cash generated through bogus billing, which was separately surrendered by the company. The Assessing Officer had made an addition of ₹1,92,650. The PCIT held that the balance amount of ₹29,35,981 should also have been taxed as a perquisite under section 17(2) and revised the assessment under section 263.
Tribunal’s Findings: The Tribunal noted that the expenditure for purchase of jewellery was admittedly incurred by the company and not by the assessee personally. More importantly, the PCIT failed to establish any employer-employee relationship between the assessee and the company, which is a foundational requirement for taxing a benefit as a perquisite under section 17(2).
In the absence of such a relationship, section 17(2) had no application. Once the very legal premise adopted by the PCIT was untenable, the original reassessment order could not be regarded as “erroneous and prejudicial to the interests of the Revenue,” which is the sine qua non for invoking section 263.
Accordingly, the Tribunal set aside the revisionary order and allowed the assessee’s appeal.
Held: Expenditure incurred by a company on purchase of jewellery cannot be taxed as a perquisite under section 17(2) in the hands of an individual unless an employer-employee relationship is established. Consequently, revision under section 263 based on such an untenable premise is invalid.
FULL TEXT OF THE ORDER OF ITAT DELHI
This captioned appeal has been filed by the assessee against the order of the learned the Pr. Commissioner of Income-Tax (Central), Delhi – 1 [‘PCIT’ in short] dated 17.03.2025 under section 263 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) arising from the assessment order dated 30.12.2022 passed by Income Tax Department under section 147/143(3) of the Act concerning Assessment Year (A.Y.) 2019-20.
2. Brief facts of the case are that the assessee is an individual and originally filed his return of income for A.Y. 2019-20 u/s 139(1) on 31.08.2019 declaring total income of Rs. 96,18,850/-. Thereafter, a search and seizure operation u/s 132 of the Act was conducted on 09.03.2022 and assessment u/s 147/143(3) of I.T. Act was completed on 30.12.2022 at total income of Rs.1,07,20,780/-.
3. In the course of search, incriminating seized materials were found regarding purchase of jewellery in cash from the premise of the assessee. The AO held the jewellery amounting to Rs 1,92,650/- were purchased in individual capacity out of unexplained sources, and added the same in the assessee’s hand as perquisite u/s 17(2) of the Act.
4. The PCIT (Central), Delhi noted that the total jewellery bills found in the course of search from the premises of the assessee amounted to Rs 31,28,131/-. The PCIT found that before CIT(A), during the assessee’s appeal proceedings for A.Y. 2020-21, the assessee had stated that addition of Rs. 29,35,981/- on account of cash expenses for purchase of jewellery should have been made in A.Y. 2019-20 instead of A.Y. 2020-21. In view of above, the assessment order was considered erroneous in so far as it is prejudicial to the interests of the revenue since income has been under assessed since the AO had added only Rs 1,92,650/-, the balance amount of Rs 29,35,981/-, on account of cash expenses for purchase of jewellery, remained to be added as perquisite rendering the order of the AO as erroneous and prejudicial to the interest of the revenue.
5. Aggrieved, the Assessee is now before us with the following grounds:
1. “That the order passed by Ld. PCIT u/s 263 of the Act is bad in law and is passed in contravention of prevailing law as well as facts of the case, therefore liable to be annulled.
2. That the order passed by Ld. PCIT u/s 263 of the Act is illegal and not-tenable under the law as the assessment completed u/s 147 r.w.s. 143(3) of the Act in the case of assessee on 30/12/2022 itself was void-ab-initio invalid and not tenable under the law.
3. That the order passed by Ld. PCIT u/s 263 of the Act is further illegal and not tenable under the law because the reassessment order passed by Ld.AO u/s 147 r.w.s. 143(3) of the Act didn’t contained DIN.
4. That the order passed u/s 263 of the Act is further illegal and not tenable under the law as reasons recorded and approval claimed to be obtained u/s 151 of the Act for initiating reassessment proceedings u/s 147 of the Act was never communicated to assessee.
5. That the Ld. PCIT grossly erred in law and in facts of the case in holding the reassessment order passed u/s 147 r.w.s. 143(3) of the Act to be erroneous and prejudicial to the interest of revenue despite the fact that tax was paid by other entity in respect of source of investment in jewellery.
6. That Ld. PCIT grossly erred in law and in facts of the case in solely relying upon statement of assessee and holding that value of invoices for purchase of jewellery is taxable u/s 17(2) of the Act despite the fact that apart from invoices no such jewellery was found during search proceedings.
7. That Ld. PCIT grossly erred in law and in facts of the case in holding that alleged money spent for purchase of jewelry was assessable in hands of assessee u/s 17(2) whereas said money was spent by his employer and said amount didn’t fell in purview of provisions of Sec. 17(2) of the Act.
8. That Ld. PCIT grossly erred in law and in facts of the case in holding order passed u/s 147 r.w.s. 143(3) of the Act to be erroneous and prejudicial to the interest of revenue despite the fact that as per the provisions of Sec. 10(10CC) of the Act said amount was not chargeable to tax in case of assessee.
9. That the appellant craves leave to add, alter, modify, or delete any grounds of appeal during the course of appellate proceedings.”
6. At the outset, the ld counsel of the assessee stated that the assessee has claimed that the jewellery belonged to M/s Ajayvision Education Private Limited where the assessee is a Director. Further, the assessee has admitted that the only jewellery bills were found from his premises and no physical jewellery was found. The ld AR submitted that the jewellery were purchased by M/s Ajayvision Education Private Limited out of cash generated from bogus billing, surrendered during the statement u/s 132(4) of the Act. It is submitted that the jewellery were purchased for employees of Vision IAS and other related persons.
7. The ld AR further challenged the PCIT order u/s 263 stating that the expenses made for purchase of jewellery was not sustainable in the hands of the assessee as perquisite u/s 17(2) of the Act as the expense was made by the company M/s. Ajayvision Education Pvt. Ltd and that there is no employer-employee relationship between the assessee and M/s Ajayvision Education Pvt. Ltd.. Hence addition on account of perquisite under section 17(2) of the Act in the assessee’s case is not as per law.
8. With regard to rejection of the claim of benefit u/s 10(10CC) of the Act, the learned Counsel of the assessee stated that the amount was not chargeable to tax in the case of the assessee as per section 10(10CC) of the Act.
9. Per contra the ld DR relied upon the orders of the PCIT.
10. We have heard the rival submissions and perused the material available on record. It is uncontroverted fact that the jewellery bills were found in case of search from the premises of the assessee. It is also an admitted fact the expense for jewellery was made by M/s. Ajayvision Education Pvt. Ltd out of unaccounted cash generated through bogus billing. We also find force in the assessee’s argument that there is no employer or employee relationship established by the PCIT between the assessee and company Ajayvision Education Pvt. Ltd. In such 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. We are of the considered view therefore, that the order u/s 147 r.w.s 143(3) dated 30.12.2022 is not erroneous and prejudicial to the interest of the Revenue and does not call for revisionary proceedings u/s 263 of the Act. Appeal of the assessee is allowed.
11. In the result, appeal of the assessee in ITA No. 3483/DEL/2025 is allowed.
Order pronounced in the open court on 18.05.2026
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