Mar 112021
 
Particulars of Income Amount

(As per income tax return)

Amount

(As per salary certificate and/or 26AS)

Assessee declared salary income Rs. 1,80,000/- Rs 2,40,000/-
Balance

(Explained as Reimbursement of conveyance expenses)

Rs 60,000/-  
Total Rs 2,40,000/- Rs 2,40,000/-

 

FACTS

The assessee declared salary from a company of a sum of Rs. 1,80,000. In the salary certificate issued by the company, a sum of Rs. 2,40,000 was stated to be paid to the assessee as remuneration. When the assessee was asked to explain the discrepancy, he submitted that the balance sum was towards reimbursement of conveyance expenses. The Assessing Officer concluded that when the expenses of running and maintenance of cars were borne by the company, as admitted by the assessee, there was no question of reimbursement of conveyance expenses. Accordingly, said amount was brought to tax. The Commissioner (Appeals) set aside addition and allowed a deduction of conveyance expenses under section 37(1).

Analysis of facts:

It may sometimes happen that salary income declared in form 16 (salary certificate) and actual income computed and declared as per income tax return may vary as salary income in form 16 is based on an estimation of income and investment for the last months of the financial year and actual investment may differ. Also, maybe, at the time of computing salary income in form 16 some actual investments by the assessee are disallowed by the employer as he has no evidence and no sanctity of evidence at that time but by the time of computing income in ITR assessee may recover all the evidence.

Under the head salary incomes following expenses are allowed as a miscellaneous expense under section 10(14):

(14) (i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose ;

(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed :

Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence ;

Examples for such allowances and benefits are listed below:

  1. Traveling allowances
  2. Transfer allowances
  3. Conveyance allowances
  4. Daily allowances – for absence from the normal place of business
  5. Helper allowance
  6. Research allowances
  7. Uniform allowances

All the above allowances are normally covered by one term in salary slip/payslip by Special Allowance. It is not open to the department to call for the details of expenses actually incurred by the assessee unless the allowances are disproportionately high compared to the salary received by the assessee or unreasonable with reference to the nature of the duties performed by the assessee.

How to handle such a situation:

  1. If the amount was paid in the form of conveyance allowance etc., the same would firstly form part of taxable income and only that amount which can be exempted under section 10(14 )(i), can be allowed as deduction.
  2. For claiming such deduction under section 10(14), the onus lies upon the assessee to prove that such expenses were incurred only in the course of employment.
  3. Also, the patterns of withdrawal from the bank account should show that the conveyance expenses were incurred by the assessee.
  4. If the amount not allowed under section 16 or above section 10(14) the amount would not be allowed under section 37(1), as a deduction under section 37(1) can be granted only when the income is chargeable under section 28 means business income.
  5. Such allowance should not unreasonable and/or disproportionate. Normally 10% happens to normal variance.
  6. In computing incomes under the head ‘Salaries’, only those deductions as narrated under section 16 can be allowed.
  7. There should not be two salary certificates and there is so second salary certificate should arise from a mistake of fact which should be very clear and visible. In the instant case, discussed above, the salary certificate originally filed, showed that the sum of Rs. 60,000 was paid in the form of salary only and not by way of reimbursement of conveyance expenses. As was rightly contended by the revenue the subsequent certificate was a self-explanatory document and was not borne out from the record that the amount of Rs. 60,000 was paid in the form of reimbursement of conveyance expenses.