M/s United Millennium Breweries Ltd., Visakhapatnam V. THE ACIT., CIRCLE - 4(1), Visakhapatnam

CO 57/VIZ/2013

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3022 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 9 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SATENDRA
• Assessee Lawyers: R GOVINDARAJAN; M N M NAIK
• Keywords: Business income
• Section: 143(3)

Judgement Text

ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.65&66/VIZAG/2013 ( / ASSESSMENT YEARS: 2007-08 & 2008-09) ACIT, CIRCLE - 4(1), VISAKHAPATNAM UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI [PAN NO. AABCG4480G ] ( % / APPELLANT) ( &'% / RESPONDENT) C.O. NOS.56 & 57/VIZAG/2013 (ARISING OUT OF I.T.A.NO.65&66/VIZAG/2013) ( / ASSESSMENT YEARS: 2007-08 & 2008-09) UNITED M ILLENNIUM BREWERIES LTD., BANTHUPALLI ACIT, CIRCLE - 4(1), VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI R. GOVINDARAJAN, DR & SHRI M.N.M. NAIK, DR / RESPONDENT BY : SHRI K. GOPAL, AR & SHRI SATENDRA PANDEY, AR / DATE OF HEARING : 28.03.2017 / DATE OF PRONOUNCEMENT : 12.04.2017 ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 2 / O R D E R PER SHRI MANJUNATHA, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE REVENUE AND TWO CROS S OBJECTIONS FILED BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE , BUT IDENTICAL ORDERS OF THE CIT(A), VISAKHAPATNAM DATED 27.11.2012 FOR T HE ASSESSMENT YEARS 2007-08 & 2008-09. SINCE, THE FACTS ARE IDEN TICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOS ED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF BEER AND IMFL PRODUCTS. THE ASSESSEE HAS FILED ITS RETURN OF FRI NGE BENEFITS FOR THE ASSESSMENT YEARS 2007-08 & 2008-09 ON 30.10.2007 AN D 27.9.2008 DECLARING TOTAL VALUE OF FRINGE BENEFITS AT ` 4,06,132/- AND ` 2,38,064/- RESPECTIVELY. THE CASES HAVE BEEN SELECTED FOR SCR UTINY AND ACCORDINGLY, NOTICE U/S 115WE OF THE INCOME TAX ACT, 1961 (HEREIN AFTER CALLED AS 'THE ACT') WAS ISSUED. IN RESPONSE TO THE NOTICE, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FURNISHED THE INFORMATION CALLED FOR. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT IN THE ASSESSMEN T COMPLETED U/S 143(3) OF THE ACT, THE ASSESSEE CLAIMS TO HAVE INCU RRED SALE PROMOTION ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 3 EXPENDITURE IN THE NATURE OF TRADE SCHEME AND DISC OUNTS, WHICH WAS INCURRED TO BOOST UP THE SALES. THE A.O. FURTHER O BSERVED THAT SINCE THE ASSESSEE HAS NOT CONSIDERED SALES PROMOTION EXPENDI TURE FOR THE PURPOSE OF VALUE OF FRINGE BENEFITS, ISSUED A NOTIC E AND ASKED TO EXPLAIN WHY SALES PROMOTION EXPENDITURE SHALL NOT BE BROUGH T TO TAX AS DEEMED VALUE OF FRINGE BENEFITS U/S 115WB(2) OF THE ACT. I N RESPONSE TO NOTICE, THE ASSESSEE SUBMITTED THAT EXPENDITURE INCURRED UN DER THE HEAD TRADE SCHEMES AND DISCOUNTS WAS PAID TO THE RETAIL TRADE RS BASED ON THE TOTAL VALUE OF PURCHASES EFFECTED BY THEM THROUGH A.P. ST ATE BEVERAGES CORPORATION LTD., BUT NOT SALES PROMOTION EXPENDITU RE INCURRED, WHICH DERIVES BENEFIT TO THE EMPLOYEE OF THE COMPANY. TH E A.O. AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, HELD THAT THE ASSESSEE HAS INCURRED SALES PROMOTION EXPENDITURE IN THE NATURE OF TRADE SCHEMES AND DISCOUNTS, HOWEVER, FAILED TO INCLUDE THE SAME IN THE VALUE OF FRINGE BENEFITS AND HENCE, COMPUTED VALUE OF FRINGE BENEFI TS @ 20% OF TOTAL SALES PROMOTION EXPENDITURE AND ADDED BACK TO THE V ALUE OF FRINGE BENEFITS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER SUBMITTED THAT TRADE DISCOUNTS OR REBATES ALLOWED TO DEALERS OR CUSTOMERS ARE IN ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 4 THE NATURE OF SELLING EXPENSES AND OUTSIDE THE SCOP E OF THE PROVISIONS OF CLAUSE (D) OF THE SUB SECTION (2) OF SECTION 115WB OF THE ACT, ACCORDINGLY, SUCH TRADE SCHEMES AND DISCOUNTS ARE N OT LIABLE TO FRINGE BENEFIT TAX. IN THIS REGARD, RELIED UPON THE CIRCU LAR ISSUED BY CBDT VIDE CIRCULAR NO.8 OF 2005 DATED 29.8.2005. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO RELIED UPON TH E BOARD CIRCULAR NO.8 OF 2005 DATED 29.8.2005, HELD THAT THERE IS NO DOUB T WHATSOEVER THAT THE INCENTIVE/COMMISSION PAID FOR SALES PROMOTION C ANNOT BE SUBJECTED TO FRINGE BENEFIT TAX AND ACCORDINGLY, DIRECTED THE A.O. TO DELETE ADDITIONS MADE TOWARDS VALUE OF FRINGE BENEFIT ON S ALES PROMOTION EXPENDITURE. AGGRIEVED BY THE CIT(A) ORDER, THE RE VENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) HAS E RRED IN HOLDING THAT THE AMOUNT DEBITED TO THE P&L ACCOUNT TOWARDS TRADE SCHEME AND DISCOUNTS CANNOT BE SUBJECTED TO FRINGE BENEFIT TA X. THE D.R., REFERRING TO THE PROVISIONS OF CLAUSE (D) OF SUB SECTION (2) OF SECTION 115WB OF THE ACT, SUBMITTED THAT ANY EXPENDITURE INCURRED IN THE NATURE OF PROMOTING THE SALE OF GOODS OR SERVICES OF THE BUSINESS OF TH E EMPLOYER COMES WITHIN THE DEFINITION OF DEEMED FRINGE BENEFITS AND ACCORDINGLY, THE A.O. WAS RIGHTLY COMPUTED VALUE OF FRINGE BENEFITS ON SA LES PROMOTION EXPENDITURE AND HIS ORDER SHOULD BE UPHELD. ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 5 5. THE LD. A.R. FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A). THE A.R. FURTHER SUBMITTED THAT THE BASIC REQUIREMENT OF THE ACT, IS THAT THERE SHOULD BE AN EMPLOYER AND EMPLOY EE RELATIONSHIP TO ATTRACT THE PROVISIONS OF SECTION 115WB OF THE ACT. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS INCURRED TRADE SCHE MES AND DISCOUNTS, WHICH IS PAID TO THE RETAIL DEALERS BASED ON THE TO TAL QUANTITY OF STOCK PURCHASED FROM M/S. A.P. STATE BEVERAGE CORPORATION LTD., WHICH HAS BEEN PAID TO THE DEALERS IN THE FORM OF CASH DISCOU NTS, WHICH CANNOT BE CONSIDERED AS SALES PROMOTION EXPENDITURE COMES WIT HIN THE PURVIEW OF THE DEFINITION OF FRINGE BENEFITS. THE A.R. FURT HER REFERRING TO THE PROVISIONS OF CLAUSE (D) OF SUB SECTION (2) OF SECT ION 115WB OF THE ACT, SUBMITTED THAT ANY EXPENDITURE IN THE NATURE OF SAL ES PROMOTION INCLUDING PUBLICITY INCURRED FOR PROMOTING THE SALE OF GOODS OR SERVICES OF THE BUSINESS OF THE EMPLOYER SHALL NOT BE CONSID ERED AS EXPENDITURE ON SALES PROMOTION INCLUDING PUBLICITY FOR THE PURP OSE OF DETERMINATION OF VALUE OF FRINGE BENEFITS. IN SUPPORT OF HIS ARG UMENTS, RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT (LTU) VS. TATA CONSULTANCY SERVICES LTD. (2015) 374 ITR 112 ( BOMBAY) AND ITAT, MUMBAI BENCH DECISION IN THE CASE OF JET AIRWAYS (I NDIA) LTD. VS. DCIT (2013) 153 TTJ 624. THE ASSESSEE ALSO RELIED UPON THE CBDT CIRCULAR NO.8 OF 2005 DATED 29.8.2005. ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 6 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DETERMINED VALUE OF FRINGE BENEFITS ON SALES P ROMOTION EXPENDITURE INCURRED BY THE ASSESSEE BY HOLDING THAT TRADE SCH EMES AND DISCOUNTS ALLOWED TO RETAIL TRADERS IS IN THE NATURE OF SALES PROMOTION EXPENDITURE, WHICH COMES UNDER THE PURVIEW OF DEEMED FRINGE BENE FITS. ACCORDING TO THE A.O., THE ASSESSEE INCURRED SALES PROMOTION EXP ENDITURE, HOWEVER, FAILED TO COMPUTE VALUE OF FRINGE BENEFITS, EVEN TH OUGH EXPENDITURE INCURRED COMES WITHIN THE MEANING OF FRINGE BENEFIT S. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPENDITURE INCURRE D UNDER THE HEAD TRADE SCHEMES AND DISCOUNTS IS PAID TO THE RETAIL TRADERS BASED ON THE TOTAL VALUE OF PURCHASES EFFECTED BY THEM THROUGH M /S. A.P. STATE BEVERAGES CORPORATION LTD., WHICH CANNOT BE CONSIDE RED AS SALES PROMOTION TO ATTRACT THE VALUE OF FRINGE BENEFITS. THE ASSESSEE FURTHER CONTENDED THAT AS PER THE CBDT CIRCULAR NO.8 OF 200 5 DATED 29.8.2005, THE CBDT HAS CLARIFIED THE APPLICABILITY OF FRINGE BENEFITS TAX ON SALES PROMOTION EXPENSES AND SALES DISCOUNTS OR REBATES T O WHOLESALERS OR CUSTOMERS WHILE ANSWERING QUESTION NOS.58 & 60 AS P ER WHICH, SALES PROMOTION EXPENSES IN THE NATURE OF BROKERAGE AND S ELLING COMMISSION PAID FOR SELLING GOODS AND SALES DISCOUNT OR REBATE S ALLOWED TO WHOLESALE DEALERS OR CUSTOMERS IN THE NATURE OF SELLING EXPEN SES ARE OUTSIDE THE ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 7 SCOPE OF THE PROVISIONS OF CLAUSE (D) OF SUB SECTIO N (2) OF SECTION 115 WB OF THE ACT. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IALS ON RECORD, WE FIND THAT THE BASIC REQUIREMENT OF SECTION 115WB( 1)&(2) ARES THAT THERE SHOULD BE AN EMPLOYER AND EMPLOYEE RELATIONSH IP TO ATTRACT THE PROVISIONS OF SECTION 115WB OF THE ACT. WHERE THERE IS NO EMPLOYER/EMPLOYEE RELATIONSHIP BETWEEN THE PAYER AN D RECIPIENT OF EXPENDITURE REFERRED TO IN SECTION 115WB OF THE ACT , THEN THERE IS NO FBT IS LEVIABLE. THEREFORE, FOR THE PURPOSE OF FRI NGE BENEFITS, ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PRIVILEGE, SERVICE, FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVID ED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE TO HIS EMPLOYEES AND ALSO ANY DEEMED CONSIDERATION PROVIDED BY THE EMPLO YER TO HIS EMPLOYEES IN THE COURSE OF HIS BUSINESS OR PROFESSI ON TOWARDS CERTAIN EXPENDITURE REFERRED TO IN SUB SECTION (2) SHALL FA LL WITHIN THE MEANING OF FRINGE BENEFITS, BUT TO ATTRACT THE PROVISIONS OF S ECTION 115WB OF THE ACT, THERE SHOULD BE AN EMPLOYEE AND EMPLOYER RELATIONSH IP. THEREFORE, WE ARE OF THE VIEW THAT IF THERE IS NO EMPLOYER AND EM PLOYEE RELATIONSHIP BETWEEN THE PAYER AND RECIPIENT OF BENEFITS, THEN N O FBT CAN BE LEVIED. 8. IN THIS CASE, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS INCURRED SALES PROMOTION EXPE NDITURE IN THE ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 8 NATURE OF TRADE SCHEMES AND DISCOUNTS, WHICH IS PAI D TO THE RETAIL TRADERS BASED ON THE QUANTITY OF STOCK PURCHASED FR OM M/S. A.P. STATE BEVERAGES CORPORATION LIMITED AND DIRECTLY PAID TO THE RETAIL TRADERS IN THE FORM OF REDUCTION IN SELLING PRICE. WE FURTHER NOTICED THAT CLAUSE (D) OF SUB SECTION (2) MAKES IT CLEAR THAT ANY SALES PR OMOTION EXPENDITURE INCURRED BY THE ASSESSEE IN THE NATURE OF PAYMENT T O ANY PERSON OF REPUTE FOR PROMOTING THE SALE OF GOODS OR SERVICES OF THE BUSINESS OF THE EMPLOYER, THEN SUCH EXPENDITURE SHALL NOT BE CONSID ERED AS EXPENDITURE ON SALES PROMOTION INCLUDING PUBLICITY. THE ASSESS EE HAS INCURRED SALES PROMOTION EXPENDITURE, WHICH IS DIRECTLY PAID TO TH E RETAIL TRADERS. IN THE ABSENCE OF EMPLOYER AND EMPLOYEE RELATIONSHIP B ETWEEN THE PAYER AND RECIPIENT, THE QUESTION OF APPLICABILITY OF FRI NGE BENEFITS ON SALES PROMOTION EXPENSES DOES NOT ARISE. WE FURTHER NOTI CED THAT THE CBDT HAS ISSUED A CIRCULAR VIDE CIRCULAR NO.8 OF 2005 DA TED 29.8.2005, TO CLARIFY THE APPLICABILITY OF FRINGE BENEFITS TAX ON SALES PROMOTION EXPENSES AND SALES PROMOTION INCLUDES SALES DISCOUN TS OR REBATES TO WHOLESALERS OR CUSTOMERS AND WHILE ANSWERING QUESTI ON NOS.58 AND 60, CLARIFIED THAT BROKERAGE AND SELLING COMMISSION PAI D FOR SELLING GOODS IS NOT EXPENDITURE FOR THE PURPOSE OF SALES PROMOTION INCLUDING PUBLICITY WITHIN THE MEANING OF CLAUSE (D) OF SUB SECTION (2) OF SECTION 115WB OF THE ACT. THE BOARD FURTHER CLARIFIES THAT SALES DI SCOUNT OR REBATES ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 9 ALLOWED TO WHOLESALE DEALERS OR CUSTOMERS ARE IN TH E NATURE OF SELLING EXPENSES AND OUTSIDE THE SCOPE OF THE PROVISIONS OF CLAUSE (D) OF SUB SECTION (2) OF SECTION 115WB OF THE ACT. THEREFORE , WE ARE OF THE VIEW THAT ANY EXPENDITURE INCURRED IS IN THE NATURE OF S ALES PROMOTION AND PUBLICITY, WHICH IS INCURRED FOR PROMOTING THE SALE OF GOODS OR SERVICES IS OUTSIDE THE PURVIEW OF THE FRINGE BENEFIT TAX. THE CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE INCLINED TO UPHOLD CIT(A) ORDER AND DISMI SS THE APPEALS FILED BY THE REVENUE. 9. THE ASSESSEE HAS FILED CROSS OBJECTIONS IN SUPPO RT OF THE ORDER OF THE CIT(A), THEREFORE, FOR THE REASONS RECORDED IN THE PRECEDING PARAGRAPHS, WE DISMISS CROSS OBJECTIONS FILED BY TH E ASSESSEE AS NOT MAINTAINABLE. 10. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 12 TH APR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 12.04.2017 VG/SPS ITA NOS.65&66/VIZAG/2013 & CO NOS.56&57/VIZAG/2013 UNITED MILLENNIUM BREWERIES LTD., BANTHUPALLI 10 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT ACIT, CIRCLE-4(1), VISAKHAPATNAM 2. / THE RESPONDENT M/S. UNITED MILLENNIUM BREWERIE S LTD., NH-5, BANTHUPALLI RANASTHALAM, SRIKAKULAM DIST. 3. + / THE CIT-2, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM SL. NO. DESCRIPTION DATE INITIALS 1. DATE OF DICTATION BY THE AUTHOR 04.04.2017 SR.P S 2. DRAFT PLACED BEFORE THE DICTATING MEMBER 10.04.2 017 SR.PS 3. DRAFT PLACED BEFORE THE SECOND MEMBER SR. PS 4. DRAFT APPROVED BY THE SECOND MEMBER SR. PS 5. DATE OF APPROVED ORDER COMES TO THE SR. PS 11.04 .2017 SR. PS 6. DATE OF PRONOUNCEMENT OF ORDER SR. PS 7. DATE OF FILE SENT TO THE BENCH CLERK SR. PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK HD. C LK 9. DATE OF DISPATCH OF ORDER SR. PS