The DCIT, Circle 1, JUNAGADH V. Gujarat Sidhee Cement Ltd, Veraval

ITA 1156/RJT/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56700 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 09-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI D.K. TYAGI (JM) AND SHRI A.L. GEHLOT (A M) I.T.A. NO.1156/RJT/2010 (ASSESSMENT YEAR 2007-08) THE DY.CIT, CIR.1 VS GUJRAT SIDHEE CEMENT LTD JUNAGADH VERVAL KODINAR ROAD VERAVAL PAN : AAACG8057G (APPELLANT) (RESPONDENT) DATE OF HEARING : 28-09-2011 DATE OF PRONOUNCEMENT : 30-09-2011 APPELLANT BY : SHRI MK SINGH RESPONDENT BY: SHRI VIMAL DESAI O R D E R PER BENCH THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-IV, RAJKOT DATED 11-06-2010 PERTAINING TO ASSESSMENT YE AR 2007-08. 2. THE EFFECTIVE GROUND RAISED IN THE APPEAL PERTAI NS TO DELETION OF RS.40,30,304 ON ACCOUNT OF RETURNED VALUE OF F.B.T. . 3. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE DISTRIBUTED GOLD COINS TO THE DISTRIBUTORS WHO ACHIEVED CERTAIN LEVEL OF TURN OVER / SALES IN THEIR RESPECTIVE REGIONS AS PER THE SCHEME APPROVED BY THE MANAGEMEN T OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER WAS OF THE VIEW THA T SELLING EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF DISTRIBUTION OF GOLD COIN S WAS IN THE NATURE OF SALES PROMOTION AND THE SAME WERE LIABLE TO FBT BY VIRTUE OF DEEMING PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT. WHILE COMING TO T HIS CONCLUSION THE ASSESSING ITA NO.1156/RJT/2010 2 OFFICER REJECTED THE ARGUMENT OF THE ASSESSEE THAT THE EXPENSES WERE FALLING IN THE PROVISO TO SECTION 115WB(2)(D) WHICH EXCLUDES C ERTAIN TYPE OF EXPENSES ON SALES PROMOTION AND PUBLICITY FROM LEVY OF FRINGE B ENEFIT TAX. THE ARGUMENT THAT THE IMPUGNED EXPENSES HAD NO CONNECTION WITH EMPLOY EES WAS ALSO NOT ACCEPTED ON THE GROUND THAT SECTION 115WB(2) WAS A DEEMING FICTION. ACCORDINGLY THE ASSESSING OFFICER CONSIDERED THE VA LUE OF RS.40,30,304(BEING 20% OF RS.2,01,51,520) AS LIABLE TO FRINGE BENEFIT TAX AS SALES PROMOTION U/S 115WB(2)(D) AND MADE ADDITION THEREOF. 4. ON APPEAL, THE CIT(A) RELYING ON ANSWER TO QUEST ION NO.61 IN THE BOARDS CIRCULAR NO. 8/2005 DATED 29-08-2005 HELD THAT THE EXPENSES ON GOLD COINS GIVEN TO DISTRIBUTORS FOR ACHIEVEMENT OF SALES TARGETS AR E NOT LIABLE FOR FRINGE BENEFIT TAX. THEREFORE, THE ADDITION OF RS.40,30,304 WAS DELETED . 5. WE HAVE HEARD THE PARTIES, RECORD PERUSED. QUES TION AND ANSWER TO QUESTION NO.61 IN THE BOARDS CIRCULAR NO.8/2005 DA TED 29-08-2005 READS AS BELOW: WHETHER EXPENDITURE ON INCENTIVES GIVEN TO DISTRIB UTORS FOR MEETING QUANTITY TARGETS (INCLUDING FREE GOODS FOR ACHIEVIN G CERTAIN SALES TARGET LIKE, 100 FREE TELEVISIONS FOR ACHIEVING A T ARGET SALE OF 10,000 TELEVISIONS AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) IS LIABLE TO FBT? 61. INCENTIVES GIVEN TO DISTRIBUTORS FOR MEETING SA LES TARGETS (INCLUDING FREE GOODS GIVEN AS INCENTIVE TO DISTRIB UTORS FOR ACHIEVING CERTAIN SALES AND CASH INCENTIVES ADJUSTABLE AGAINS T FUTURE SUPPLIES) ARE IN THE NATURE OF PERFORMANCE-BASED CO MMISSION. SUCH PERFORMANCE-BASED COMMISSION IS IN THE NATURE OF ORDINARY SELLING COST. THEREFORE, EXPENDITURE INCURRED FOR THE PURPOSE OF PROVIDING INCENTIVES GIVEN TO DISTRIBUTORS FOR MEET ING SALES TARGETS (INCLUDING FREE GOODS FOR ACHIEVING CERTAIN SALES T ARGET AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) DO N OT FALL WITHIN THE SCOPE OF CLAUSE (D) OF SUB-SECTION (2) OF SECTION 1 15WB AND, THEREFORE, NOT LIABLE TO FBT. ITA NO.1156/RJT/2010 3 ON A PLAIN READING OF THE ABOVE CLARIFICATION ISSUE D BY THE CBDT, WE DO NOT SEE MERIT IN THE APPEAL FILED BY THE REVENUE. THE ABOV E CLARIFICATION ISSUED BY THE CBDT CLEARLY PROHIBITS ANY DISALLOWANCE U/S 115WB(2 )(D) TOWARDS INCENTIVES GIVEN TO DISTRIBUTORS / AGENTS. IT HAS BEEN ABUNDA NTLY CLARIFIED THAT SUCH PERFORMANCE BASED COMMISSION IS IN THE NATURE OF OR DINARY SELLING COST. THERE IS NO REFERENCE ABOUT THIS CIRCULAR ISSUED BY THE CBD T IN THE ASSESSMENT ORDER; HOWEVER, THE CIT(A) FOLLOWED THE ABOVE ORDER OF CBD T. UNDER THE CIRCUMSTANCES, WE HAVE TO NECESSARILY UPHOLD THE OR DER OF THE CIT(A). ACCORDINGLY WE UPHOLD THE ORDER OF CIT(A) AND DISMI SS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 30-09-2011. SD/- SD/- (D.K. TYAGI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 30 TH SEPTEMBER, 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-IV, RAJKOT 4. THE CIT-III, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT