MAHINDRA & MAHINDRA LTD, MUMBAI V. ADDL CIT RG 2(2), MUMBAI

ITA 2423/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8251 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H P MAHAJANI
• Keywords: Gift; Business expenditure; Revised return
• Section: 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , / BEFORE SHRI D. MANMOHAN, VICE PRESIDENT / AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER I.T.A. NO. 3999/MUM/2010 ASSESSMENT YEAR 2006-07 I.T.A. NO. 2423/MUM/2011 ASSESSMENT YEAR 2007-08 MAHINDRA & MAHINDRA LIMITED, MAHINDRA TOWERS, GROUND FLOOR, CORPORATION TAXATION, WORLI ROAD NO.13, WORLI, MUMBAI 400 018. PAN: AAACM 3025 E VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE 2(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400 020. ( '( / APPELLANT) ( )*'( / RESPONDENT) '( + ! / APPELLANT BY : SHRI H.P. MAHAJANI )*'( , + ! /RESPONDENT BY : SHRI MOHIT JAIN , -$ / DATE OF HEARING : 17-09-2012 ./ , -$ / DATE OF PRONOUNCEMENT : 16-11-2012 %!0 / O R D E R PER RAJENDRA, A.M. ABOVE MENTIONED TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE-COMPANY FOR THE ASSESSMENT YEARS (AYS) 2006-07 AND 2007-08. AS THE ISSUES RAISED IN BOTH THE APPEALS ARE MORE OR LESS SAME, FOR THE SAKE OF CONV ENIENCE, WE WOULD LIKE TO DECIDE THEM IN A COMMON ORDER. THESE APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A)- 5, MUMBAI DATED 02-03-2010 & 27-01-2011 RESPECTIVEL Y. GROUNDS OF APPEAL FOR THE AY 2006-07 READS AS UND ER: BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMIS SIONER OF INCOME TAX (APPEALS) 5, MUMBAI (C.I.T. (A)) THE APPELLANT SUBMITS THE FOLLO WING GROUNDS OF APPEAL FOR YOUR SYMPATHETIC CONSIDERATION. I.T.A. NO. 3999/MUM/2010 I.T.A. NO. 2423/MUM/2011 MAHINDRA & MAHINDRA 2 1. REVISED VALUE OF FRINGE BENEFIT NOT CONSIDERED - RS. 33,62,26,739/ - THE LEARNED C.I.T.(A) ERRED IN NOT ACCEPTING THE CO NTENTION OF APPELLANT THAT REVISED VALUE OF EXPENDITURE LIABLE FOR FRINGE BENEFIT IS RS . 1,39,74,63,401 (VALUE OF FRINGE BENEFIT - RS. 33,62,26,739) AS AGAINST ORIGINAL EXPENDITURE L IABLE FOR FRINGE BENEFIT OF RS. 1,66,35,72,462 (VALUE OF FRINGE BENEFIT - RS.38,98 ,14,061) AS PER ORIGINAL RETURN OF INCOME FILED ON 30TH OCTOBER, 2006 BY STATING THAT THE APP ELLANT DID NOT FILE REVISED RETURN WITHIN THE STIPULATED TIME PRESCRIBED UNDER SECTION 115WD(4) O F THE INCOME TAX ACT. 1961. THE LEANED CIT. (A) OUGHT TO HAVE ACCEPTED THE AFOR ESAID CLAIM MADE BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. TAXABILITY OF VALUE OF EXPENDITURE ON NON-EMPLOYEES - RS. 23,23,38.793/ - THE LEARNED C.I.T. (A) ERRED BY NOT EXCLUDING THE AMOUNT OF RS.23,23,38,793/-WHICH IS THE VALUE OF EXPENDITURE ON NON-EMPLOYEES WHILE COMPUTI NG THE VALUE OF FRINGE BENEFITS BY STATING THAT THE APPELLANT DID NOT FILE REVISED RETURN WITH IN THE STIPULATED TIME PRESCRIBED UNDER SECTION 115WD(4) OF THE INCOME TAX ACT, 1961. THE LEARNED C.I.T.(A) OUGHT TO HAVE ACCEPTED THE CO NTENTION OF THE APPELLANT THAT IN COMPUTING THE VALUE OF CHARGEABLE FRINGE BENEFITS, EXPENDITURE SHOULD BE RESTRICTED TO EXPENSES INCURRED ON EMPLOYEES ONLY AND EXPENSES IN CURRED ON NON-EMPLOYEES ARE OUTSIDE THE PURVIEW OF FRINGE BENEFIT TAX. THE LEARNED C.I. T.(A) OUGHT TO HAVE ACCEPTED THAT THE PURPOSE OF THE LEGISLATION IN LEVYING FRINGE BENEFI T TAX IS TO BRING TO TAX THE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO EMPLOYEES AS CON SIDERATION FOR EMPLOYMENT AND THEREFORE THE QUESTION OF TAXING EXPENDITURE INCURR ED ON NON EMPLOYEES DOES NOT ARISE. 3. DUPLICATION OF EXPENSES OF RS.3,37,70,268 /- LIABLE FOR FRINGE BE NEFIT THE LEARNED C.I.T(A) ERRED IN NOT REDUCING THE EXPE NSES OF RS 3,37,70,268/- WHICH WERE CONSIDERED TWICE IN THE ORIGINAL RETURN FILED BY TH E APPELLANT. THE LEARNED C.I.T(A) OUGHT TO HAVE ACCEPTED THE REC TIFICATION CLAIM FILED ALONG WITH REVISED TAX AUDIT REPORT BY THE APPELLANT DURING THE ASSESS MENT PROCEEDINGS. YOUR APPELLANT RESERVES THE RIGHT TO ADD TO, ALTER OR AMEND ANY OF THE ABOVE GROUNDS OF APPEAL, IF FELT NECESSARY. GROUNDS OF APPEAL FOR THE AY 2007-08 READS AS UNDER : BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) 5. MUMBAI (C.I.T. (A)) THE APPELLANT SUBMITS THE FOLLO WING GROUNDS OF APPEAL FOR YOUR SYMPATHETIC CONSIDERATION 1. TAXABILITY OF VALUE OF EXPENDITURE ON NON-EMPLOYEES - RS. 13,74,366/ - THE LEARNED C.I.T. (A) ERRED BY NOT EXCLUDING AN AM OUNT OF RS. 13,74,366/-, REPRESENTING EXPENDITURE INCURRED BY THE APPELLANT ON NON-EMPLOY EES WHILE COMPUTING THE VALUE OF FRINGE BENEFITS. THE LEARNED C.I.T. (A) ERRED IN CONSIDERI NG THAT SINCE ITEMS OF EXPENDITURE FALL UNDER THE CATEGORY OF FRINGE BENEFITS AS MENTIONED IN SEC. 1 15WB(2), THEY ARE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES . HENCE THESE EXPENSES WILL BE DEEMED TO BE FRINGE BENEFITS COVERED BY THE PROVISIONS OF SEC. 115WB. THE LEARNED C.I.T.(A) OUGHT TO HAVE ACCEPTED THE CO NTENTION OF THE APPELLANT THAT IN COMPUTING THE VALUE OF CHARGEABLE FRINGE BENEFITS, EXPENDITURE SHOULD BE RESTRICTED TO EXPENSES INCURRED ON EMPLOYEES ONLY AND EXPENSES IN CURRED ON NON-EMPLOYEES ARE OUTSIDE THE PURVIEW OF FRINGE BENEFITS TAX. THE LEARNED C.I .T.(A) OUGHT TO HAVE ACCEPTED THAT THE PURPOSE OF THE LEGISLATION IN LEVYING FRINGE BENEFI T TAX IS TO BRING TO TAX THE BENEFITS I.T.A. NO. 3999/MUM/2010 I.T.A. NO. 2423/MUM/2011 MAHINDRA & MAHINDRA 3 PROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO EMPLOYE ES AS CONSIDERATION FOR EMPLOYMENT AND THEREFORE THE QUESTION OF TAXING EXPENDITURE INCURR ED ON NON EMPLOYEES DOES NOT ARISE. REIMBURSEMENT OF MEDICAL EXPENSES OF RS.1,19,76,943 /- NOT LIABLE FOR FRINGE BENEFIT THE LEARNED CIT. (A) ERRED IN NOT ACCEPTING THE CON TENTION THAT REIMBURSEMENT OF MEDICAL EXPENSES OF RS. 1,19,76,943/- ARE NOT LIABLE FOR FR INGE BENEFIT TAX. THE LEARNED C.I.T. (A) OUGHT TO HAVE ACCEPTED THE F ACT THAT THESE EXPENSES ARE SPECIFICALLY EXEMPTED BY SECTION 17(2) OF THE INCOME TAX ACT AND HENCE NOT LIABLE TO BE CONSIDERED AS FRINGE BENEFITS PROVIDED TO EMPLOYEES YOUR APPELLANT RESERVES THE RIGHT TO ADD TO, ALTER OR AMEND ANY OF THE ABOVE GROUNDS OF APPEAL, IF FELT NECESSARY. 2.ITA NO. 3999/ MUM/2010 2. ASSESSEE FILED THE RETURN OF FRINGE BENEFIT (FB) ON 30-10-2006 DECLARING TAXABLE VALUE OF FB AT RS. 38,98,14,061/-. THE CASE WAS SE LECTED FOR SCRUTINY AND WAS FINALISED AND THE ASSESSMENT AS PER SECTION 115 WE( 3) OF THE INCOME TAX ACT, 1961 (ACT) WAS PASSED ON 26-12-2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO FOUND THAT THE ASSESSEE HAD FILED A REVISED VALUE O F FB AMOUNTING TO RS. 38,28,84,936/-. IT WAS ARGUED BY THE ASSESSEE THA T EXPENSES WHICH WERE NOT INCURRED ON EMPLOYEES COULD NOT BE CONSTRUED TO GIVE BENEFIT S TO EMPLOYEES, THAT THE EXPENSES INCURRED ON NON-EMPLOYEES SHOULD NOT BE INCLUDED FO R COMPUTING FRINGE BENEFIT TAX (FBT). IT IS WAS SUBMITTED BY THE ASSESSEE THAT VA LUE OF EXPENDITURE ON NON- EMPLOYEES AMOUNTING TO RS. 23,23,38,739/- SHOULD BE REDUCED WHILE COMPUTING THE VALUE OF FB. SIMILARLY, IT WAS FURTHER STATED THAT EXPENSES TAKEN FOR VALUE OF FB TWICE AMOUNTING TO RS. 3,37,70,268/- TO BE REDUCED. IN S HORT, THE ASSESSEE CONTENDED THAT GIVING EFFECT TO THE ABOVE REDUCTIONS, THE VALUE OF FB WOULD BE AT RS. 23,62,26,739/- .AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO HELD THAT HE HAD NO AUTHORITY; WHILE COMPUTING THE ASSESSMENT U/S. 115 WE(3) OF TH E ACT; TO REDUCE THE TAXABLE VALUE OF FB DECLARED IN THE RETURN OF INCOME, THAT ASSESSEE HAD NOT REVISED ITS RETURN OF FB WITHIN A PERIOD OF ONE YEAR, THAT ASSESSEES CLAIM FOR REDUCTION OF VALUE OF FB COULD NOT BE ACCEPTED. HE REFERRED TO THE CASE OF HONBLE SUPREME COURT DELIVERED IN THE CASE OF GOETZE INDIA LTD (284 ITR 323). HE FUR THER HELD THAT VALUE OF EXPENDITURE INCURRED ON NON-EMPLOYEES AMOUNTING TO RS. 23,23,38 ,793/- WAS NOT ACCEPTABLE AS PER THE PROVISIONS OF SUB-SECTION 1, SECTION 115WB OF T HE ACT. FINALLY, HE DETERMINED THE VALUE OF FB AT RS. 38,98,14,061/- DECLARED BY T HE ASSESSEE IN THE RETURN OF FB. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THE ASSESSING OFFICER, HE HELD THAT THERE WAS NO INFIRMITY IN THE ACTION OF T HE AO, THAT THE AO HAD MERELY ACCEPTED THE VALUE OF FB AS DISCLOSED BY THE APPELL ANT ITSELF, THAT NO REVISED RETURN WAS FILED BY THE ASSESSEE-COMPANY WITHIN THE STIPUL ATED PERIOD, THAT AO WAS JUSTIFIED IN REJECTING A REVISED CLAIM MADE BY WAY OF A LETTE R SUBMITTED DURING THE ASSESSMENT PROCEEDINGS, THAT THE RATIO LAID DOWN BY THE HONBL E SUPREME COURT IN THE CASE OF GOETZE INDIA LTD (SUPRA) WAS DIRECTLY APPLICABLE TO THE CASE UNDER CONSIDERATION. HE FURTHER HELD THAT PROVISIONS OF SECTION 115WB(2) IN DICATED THAT THE PROVISIONS WERE NOT MEANT EXCLUSIVELY FOR EMPLOYEES ONLY, THAT THER E WAS NO MERIT IN THE CLAIM THAT PERQUISITES PERTAINING TO NON-EMPLOYEES COULD NOT B E INCLUDED FOR TAX PURPOSES. I.T.A. NO. 3999/MUM/2010 I.T.A. NO. 2423/MUM/2011 MAHINDRA & MAHINDRA 4 FINALLY, HE DISMISSED THE APPEAL FILED BY THE ASSES SEE-COMPANY UPHOLDING THE ORDERS OF THE AO. 3. ITA NO. 2423/MUM/2011 IN THIS CASE, RETURN OF FBT WAS FILED BY THE ASSESS EE ON 29-10-2007 DECLARING A TOTAL VALUE OF FB AT RS. 26,12,03,140/-.ASSESSEE FILED RE VISED RETURN ON 31-05-2009 DECLARING FB RS. 24,78,51,831/-.DURING THE COURSE O F ASSESSMENT PROCEEDINGS, APPELLANT COMPANY FILED A COMPARATIVE CHART IN RES PECT OF THE ORIGINAL AND THE REVISED FBT VALUATIONS. AS PER THE AO, THE ASSESSEE VIDE IT S LETTER DT. 16-12-2009 FILED THE DETAILS OF THE REVISED VALUE OF THE FB EXCLUDING FB IN RESPECT OF (I) EXPENDITURE INCURRED NOT CONNECTED TO EMPLOYEES AND (II) MEDICA L EXHIBITION OF EMPLOYEES. IT WAS SUBMITTED BY THE ASSESSEE THAT VALUE OF EXPENDITURE INCURRED ON NON-EMPLOYEES AMOUNTING TO RS. 1,33,51,309/- HAD TO BE REDUCED WH ILE COMPUTING THE FB. AO HELD THAT AS PER THE PROVISIONS OF SUB-SECTION 1 OF THE SECTION 115WB, THE REQUEST MADE BY THE ASSESSEE COULD NOT BE ACCEPTED. HE ALSO HELD T HAT EXPENSES INCURRED ON PROCEEDINGS OTHER THAN THE EMPLOYEES WOULD BE LIABL E FOR FBT. HE REFERRED TO QUESTION NO.7 OF THE CIRCULAR NO. 8/2005 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT) ON 29-08-2005.FINALLY, HE HELD THAT THERE WA S NO SCOPE FOR THE REDUCTION OF TAXABLE VALUE OF FB DECLARED IN THE RETURN OF INCOM E. ACCORDINGLY, TAXABLE VALUE OF FB AMOUNTING TO RS. 26.12 CRORES DECLARED BY THE AS SESSEE IN THE ORIGINAL FB RETURN WAS ACCEPTED U/S. 115WB(3) OF THE ACT. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THE AO, HE HELD THAT 4 ITEMS OF EXPENDITURE (ENTERTAINMENT, HOSPITALITY IN THE BUSINESS OTHER THAN BUSINESS REFERRED TO IN 4B, 4C OR 4D, GIFTS, TOURS AND TRAVE LS INCLUDING FOREIGN TRAVELLING) FELL UNDER THE CATEGORY OF FB AS PER SECTION 115WB (2) O F THE ACT, THAT THESE BENEFITS WERE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER T O HIS EMPLOYEES, THAT THESE 4 ITEMS OF EXPENSES WERE DEEMED FB, THAT THEY WERE CO VERED UNDER CLAUSES [(A.B,O AND Q) OF THE SECTION 115WB(2)]. ACCORDINGLY, HE HELD THAT THE VALUE OF THESE 4 ITEMS WAS RIGHTLY INCLUDED IN THE FB. WITH REGARD TO REIM BURSEMENT OF MEDICAL EXPENSES OF 1.19 CRORES TO THE EMPLOYEES, HE HELD THAT SECTION 115WB (2) VERY SPECIFICALLY RECOGNISED THE CONCEPT OF DEEMED FB, THAT THE SECTI ON CLEARLY STIPULATED THAT EXPENSES MENTIONED IN THE SECTION WOULD BE INCLUDED IN THE V ALUE OF FB EVEN IF THEY ARE IN CONNECTION WITH THE EMPLOYEES, THAT CLARIFICATION I SSUED BY THE CBDT VIDE CIRCULAR DT. 29-08-2005 (SUPRA) WAS APPLICABLE IN THE CASE U NDER CONSIDERATION, THAT REFERENCE TO SECTION 17(2) OF THE ACT WAS NOT RELEVANT. FINA LLY, UPHOLDING THE ORDER OF THE AO, HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT AY UNDER CONSIDERATION WAS THE FIRST YEAR WHEN PROVISIONS OF FBT WERE APPL IED, THAT THERE WAS SOME MISUNDERSTANDING IN APPLYING THE SAID PROVISIONS, T HAT FBT WAS NOT APPLICABLE TO THE EXPENDITURE INCURRED FOR NON-EMPLOYEES, THAT FAA SH OULD HAVE ACCEPTED THE CLAIMS MADE BY THE ASSESSEE WITH REGARD TO REVISE VALUE OF FB AND DUPLICATION OF EXPENSES. HE RELIED UPON THE CASES OF MESCOM (ITA 1178/BANG/2 009 AY 2006-07 DTD.19.05. 2010), TOYATA KIRLOSKAR MOTOR PVT. LTD. (ITA NO.88 /BANG/2011 AY 2008-09 DTD.11. 05. 2012), KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. (ITA NO.491/MUM/2010 AY 2006-07 DTD.25.11.2011) AND TATA ASSET MANAGEME NT LTD. (ITA NO. 2735/MUM/ 2011DTD.2007-08).HE ALSO REFERRED TO THE JUDGMENT D ELIVERED BY THE HONBLE JURISDI- I.T.A. NO. 3999/MUM/2010 I.T.A. NO. 2423/MUM/2011 MAHINDRA & MAHINDRA 5 CTIONAL HIGH COURT IN THE CASE OF PRITHVI BROKERS A ND SHAREHOLDERS (INCOME-TAX APPEAL NO.3908 OF 2010 DTD.21.06.2012).DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDERS OF THE AO AND FAA AND SUBMITTED THA T AO WAS NOT AUTHORISED TO ACCEPT NEW CLAIM IF REVISED RETURN WAS NOT FILED, T HAT ASSESSEE DID NOT FILE REVISED RETURN THOUGH IT HAD REQUIRED INFORMATION. 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL BEFORE US. FIRST, WE WOULD LIKE TO DECIDE THE ISSUE OF APPLICABILITY OF FBT WI TH REGARD TO NON-EMPLOYEES. AO AS WELL AS THE ASSESSEE HAVE ADMITTED THAT EXPENDITURE AMOUNTING TO RS. 23.23 CRORES WAS NOT INCURRED ON EMPLOYEES OF THE ASSESSEE-COMPA NY. WHETHER THE SAID EXPENDITURE IS COVERED BY SEC.115 OR NOT WAS A POIN T OF DISPUTE DURING THE INITIAL PERIOD OF FBT PROVISIONS. BUT, NOW IT IS SETTLED L AW THAT EXPENDITURE INCURRED FOR NON-EMPLOYEES IS NOT LIABLE FOR FBT. WE FIND THAT C OORDINATE BENCHES OF MUMBAI TRIBUNAL IN THE CASES OF KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. AND TATA ASSET MANAGEMENT LTD. (SUPRA) HAVE DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE. SIMILARLY, BANGALORE BENCHES OF TRIBUNAL HAVE ALSO TAKEN THE SAME VIEW. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE JUDG MENT DELIVERED BY THE BANGALORE BENCH IN THE CASE OF TOYATA KIRLOSKAR MOTOR PVT. LT D.(SUPRA) : THE FINANCE MINISTERS SPEECH WHILE INTRODUCING THE PROVISIONS OF FBT AND THE MEMORANDUM EXPLAINING THE PROVISIONS OF FBT STATES THAT WHEN THE BENEFITS ARE FULLY ATTRIBUTABLE TO THE EMPLOYEE, THEY ARE TAXED IN THE HANDS OF THE EMPLOYER AND THAT POSITION WILL CONTINUE. HENCE, EXPENDITURE ON EMPLOYEE REFER RAL SCHEME, EVEN THOUGH SATISFIES THE EMPLOYER-EMPLOYEE RELATIONSHIP, CANNOT BE SUBJECT T O FBT; THE PURPOSE OR RATIONALE BEHIND INTRODUCTION OF FBT PROVISIONS IS TO TAX A BENEFIT WHICH IS ENJOYED COLLECTIVELY BY THE EMPLOYEES WHICH WAS HIT HERTO UNTAXED IN THE HANDS OF THE EMPLOYEES AND IN RESPECT OF WHICH THE EMPLOYER WAS CLAIMING DEDUCTION. IF THE BENEFIT IS ATTRIBUTABLE TO EMPLOYEES INDIVIDUALLY OR SEPARATEL Y, THE QUESTION OF LEVYING FBT DOES NOT ARISE. THIS IS CLEAR FROM THE FINANCE MINISTERS SP EECH AND THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL. LIKEWISE, AN EXPEND ITURE WHICH DOES NOT RESULT IN ANY BENEFIT TO AN EMPLOYEE WOULD NOT BE LIABLE FOR FBT. FBT IS LEVIABLE ONLY IN A CASE WHERE EXPENDITURE IS INCURRED BY THE EMPLOYER OSTENSIBLY FOR THE PURP OSE OF BUSINESS BUT INCLUDES IN PARTIALLY A BENEFIT OF A PERSONAL NATURE WHICH CANNOT BE ATTRIB UTED OR IS DIFFICULT TO ATTRIBUTE. THE LEGISLATURE ITSELF HAS EXCLUDED LEGITIMATE BUSINESS EXPENDITURE FROM THE PURVIEW OF FBT. THE EXPENDITURE IN THE NATURE OF SALES PROMOTION, CONVE YANCE, TOUR AND TRAVEL AND GIFTS HAS NO ELEMENT OF EMPLOYEE BENEFIT AND IS A LEGITIMATE BUS INESS EXPENDITURE INCURRED BY THE ASSESSEE IN THE COURSE OF CARRYING ON ITS BUSINESS. THE IMPU GNED EXPENDITURE WAS PAID TO THIRD PARTIES AND NOT TO EMPLOYEES. THUS, THE LEGITIMATE BUSINESS EXPENDITURE, WHICH DOES NOT RESULT IN ANY BENEFIT TO EMPLOYEES, IS NOT LIABLE FOR FBT; SECTION 1I5WB(2) INCORPORATES A DEEMING FICTION PRO VIDING THAT FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES IF HE HAS INCURRED OR MADE PAYMENT FOR SOME DEFINITE PURPOSE. DEEMING FICTIONS ARE CREATED FOR SOME DEFINITE PURPOSE AND MUST BE LIMITED TO THAT PURPOSE AND NOT BE EXTE NDED BEYOND THAT LEGITIMATE FIELD OR PURPOSE FOR WHICH IT HAS BEEN CREATED. THE FINANCE MINISTERS SPEECH AND THE MEMORANDUM EXPLAINING THE FBT PROVISIONS PROVIDES THE RATIONAL E FOR LEVYING FBT ON THE EMPLOYER LIES IN THE INHERENT DIFFICULTY IN ISOLATING THE PERSONAL ELEMENT WHEN THERE IS NO COLLECTIVE ENJOYMENT OF SUCH BENEFITS AND IN ATTRIBUTING THE SAME DIRECTLY TO THE EMPLOYEE. IT FURTHER PROVIDES THAT WHERE ATTRIBUTION OF THE PERSONAL BEN EFIT POSES PROBLEMS OR FOR SOME REASONS, IT IS NOT FEASIBLE TO TAX THE BENEFITS IN THE HANDS OF THE EMPLOYEE, IT IS PROPOSED TO LEVY A SEPARATE TAX KNOWN AS FBT ON THE EMPLOYER ON THE VA LUE OF SUCH BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO THE EMPLOYEES. THUS, THE I NTENTION OF CREATION OF A DEEMING FICTION I.T.A. NO. 3999/MUM/2010 I.T.A. NO. 2423/MUM/2011 MAHINDRA & MAHINDRA 6 UNDER SECTION 115WB(2) IS TO INCLUDE AN EXPENDITURE RESULTING IN COLLECTIVE ENJOYMENT OF FRINGE BENEFITS BY THE EMPLOYEES AND IT IS DIFFICUL T OR NOT FEASIBLE TO ATTRIBUTE SUCH BENEFIT PERSONALLY TO EMPLOYEES. THE LEGISLATURE ITSELF HAS CLARIFIED THAT WHERE THE BENEFITS ARE FULLY ATTRIBUTABLE TO EMPLOYEES, THE SAME CONTINUES TO BE TAXABLE IN THE HANDS OF THE EMPLOYEES. ON A PLAIN READING OF SUB-SECTION 1 AND 2 OF SECTION 1 15WB, IT WOULD BE EVIDENT THAT SUB-SECTION 1 COVERS THOSE FRINGE BENEFITS WHICH CAN BE FULLY A TTRIBUTED TO EMPLOYEES AND SUB-SECTION 2 COVERS THOSE FRINGE BENEFITS THE PERSONAL ATTRIBUTI ON OF WHICH IT IS DIFFICULT TO MAKE. THUS, THE DEEMING FICTION U/S 115WB (2) IS LIMITED TO THOSE E XPENDITURES WHICH RESULT IN COLLECTIVE ENJOYMENT OF BENEFITS BY THE EMPLOYEES AND WHERE PE RSONAL ATTRIBUTION OF BENEFIT POSES DIFFICULTY. IT IS ONLY UNDER THESE CIRCUMSTANCES TH AT, THE DEEMING FICTION UNDER SECTION 115WB(2) COMES INTO PLAY. IN A CASE WHERE THE BENEF IT IS FULLY ATTRIBUTABLE TO EMPLOYEES OR WHERE THE EXPENDITURE DOES NOT RESULT IN ANY BENEFI T AT ALL TO EMPLOYEES, THE DEEMING FICTION UNDER SECTION 115WB(2) IS NOT ATTRACTED AND CONSEQU ENTLY, NO FBT CAN BE LEVIED ON THE EMPLOYER. IN THE PRESENT CASE, THE SALES PROMOTION EXPENSES, EXPENSES ON CONVEYANCE, TOUR AND TRAVEL AND GIFTS ARE INCURRED IN THE COURSE OF BUSINESS AND ARE NOT PAID TO EMPLOYEES. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDIN ATING BENCHES WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. 5.1. AS FAR AS GROUND NO.1 IS CONCERNED, WE FIND THAT TH E AO AND THE FAA WERE OF THE OPINION THAT THE ASSESSEE SHOULD HAVE FILED REV ISED RETURN IN STIPULATED TIME. THEY HAVE NOT DECIDED THE ISSUE ON MERITS. RELYING UPON THE ORDER OF THE HONBLE SC DELIVERED IN THE CASE OF GOETZE, CLAIM MADE BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS HAS BEEN REJECTED. WE ARE OF THE OPINI ON THAT AFTER THE DECISION OF PRUTHVI BROKERS & SHAREHOLDERS PVT.LTD.(SUPRA) A PRAGMATIC VIEW HAS TO BE TAKEN BY THE FAA. IT IS TRUE THAT AO CANNOT ALLOW A CLAIM IF IT IS NO T MADE IN A REVISED RETURN. BUT, AS PER THE HONBLE JURISDICTIONAL HIGH COURT FAA HAS POWER TO ALLOW THE CLAIM MADE DURING ASSESSMENT PROCEEDINGS I.E. WHERE ASSESSEE HAS NOT FILED A REVISED RETURN. IN THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT MATTER SHO ULD BE RESTORED TO THE FILE OF THE FAA WITH A DIRECTION TO DECIDE THE SAME ON MERIT IN ACCORDANCE WITH LAW AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY OF HEARING OF BEI NG HEARD TO THE ASSESSEE. GROUND NO.1 IS PARTLY DECIDED IN FAVOUR OF THE ASSESSEE. 5.2. LAST GROUND OF APPEAL IS ABOUT DUPLICATION OF EXPEN SES AMOUNTING TO RS.3.37 CRORES LIABLE FOR FBT. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE FAA. IT IS A KNOWN FACT THE PERIOD IN QUESTION WAS THE INFANCY STAGE OF THE FBT AND POSSIBILITY OF MISCALCULATION OF FB CANNOT BE RULED OUT. IT TAKES SOME TIME FOR THE ASSESSEE AND THE AO TO HAVE A CLEAR IDEA ABOUT THE PROVISIONS OF A NEWLY INTRODUC ED SECTIONS.FBT WAS INTRODUCED IN THE COUNTRY FOR THE FIRST TIME AND CBDT HAD ALSO IS SUED CIRCULAR IN THIS REGARD. IN THESE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION, WE ARE OF THE OPINION THAT CLAIM MADE BY THE ASSESSES THAT THERE WAS CALCULATION MISTAKE IN VALUING FB SHOULD BE DECIDED ON MERITS. AS STATED EARLIER, WE RESTORE THE MATTER TO THE FAA TO DECIDE THE ISSUE AS WHETHER THERE WAS DUPLICATIO N OF EXPENSES THAT RESULTED IN TAXING THE SAME AMOUNT TWICE? IF THE ANSWER IS YES THEN TH E MATTERS DESERVES TO BE DECIDED AFRESH. AS PET THE ESTABLISHED PRINCIPLES OF TAXA TION-JURISPRUDENCE ONLY DUE TAXES, NOT TAXES, HAVE TO BE COLLECTED FROM THE SUBJECTS B Y THE SOVEREIGN. IF DUPLICATION OF EXPENSES HAS RESULTED IN DOUBLE TAXATION THEN ASSES SEE IS ENTITLED TO RELIEF SPECIALLY WHEN THE PROVISIONS OF FB WERE NOT SO CLEAR. FAA I S REQUESTED TO ADJUDICATE THE ISSUE AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. I.T.A. NO. 3999/MUM/2010 I.T.A. NO. 2423/MUM/2011 MAHINDRA & MAHINDRA 7 GROUND NO. 3 IS PARTLY DECIDED IN FAVOUR OF THE ASS ESSEE. APPEAL FILED BY THE ASSESSEE FOR THE AY 2006-07 STA NDS PARTLY ALLOWED. 6. GROUND NO.1 FOR THE AY 2007-08 IS ABOUT TAXABILITY OF VALUE OF EXPENDITURE ON NON-EMPLOYEES AMOUNTING TO RS. 13.74 LAKHS.AR AND T HE DR MADE THE SAME SUBMISSIONS THAT WERE ADVANCED WHEN THE APPEAL FOR AY 2006-07 WAS ARGUED. WHILE DECIDING THE APPEAL FOR THE EARLIER AY, WE HAVE ALR EADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE SAME, GROUND NO.1 FILE D BY THE ASSESSEE IS ALLOWED. 6.1. GROUND NO.2 DEALS WITH REIMBURSEMENT OF MEDICAL EXP ENSES AMOUNTING TO RS.1.19 CRORES. WE HAVE HEARD THE RIVAL SUBMISSION IN THIS REGARD. WE FIND THAT ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE G BENCH OF ITAT MUMBAI VIDE ITS ORDER DTD. 03.12. 2010(ITA NO.840/MUM/2010 AY 2006-07) IN THE CASE OF GODREJ PROPERTIES LTD. AND B BENCH OF ITAT BANGALORE (ITA NO.1407/BANG/2010 AY 2007- 08 DTD.07. 10.2011)IN THE CASE OF BOSCH LTD. EXTRAC TS FROM THE BUDGET SPEECH OF THE FINANCE MINISTER OF 2005-06 ALSO SUPPORT THE SUBMIS SIONS MADE BY THE AR. HERE, WE WOULD LIKE TO REPRODUCE RELEVANT PORTION OF THE JUD GMENT OF GODREJ PROPERTIES LTD.(SUPRA) 7. SECTION 115WB (3) READS AS FOLLOWS: FOR THE PURPOSES OF SUB-SECTION (1), THE PRIVILEGE , SERVICE, FACILITY OR AMENITY DOES NOT INCLUDE PERQUISITES IN RESPECT OF WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEE [OR ANY BENEFIT OR AMENITY IN THE NATURE OF FREE OR SUBSIDIZED TRAN SPORT OR ANY SUCH ALLOWANCE PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES FOR JOURNEYS BY THE E MPLOYEES FROM THEIR RESIDENCE TO THE PLACE OF WORK OR SUCH PLACE OF WORK TO THE PLACE OF RESID ENCE](EMPHASIS OURS). IN THE MEMORANDUM EXPLAINING THE PROVISO TO THE FIN ANCE BILL, IT IS STATED AS FOLLOWS: THEREFORE, IT IS PROPOSED TO ADOPT A TWO PRONGED AP PROACH FOR THE TAXATION OF FRINGE BENEFITS UNDER THE INCOME-TAX ACT. PERQUISITES WHICH CAN BE DIRECTLY ATTRIBUTED TO THE EMPLOYEES WILL CONTINUE TO BE TAXED IN THEIR HANDS IN ACCORDANCE W ITH THE EXISTING PROVISIONS OF SECTION 17(2) OF THE INCOME TAX ACT AND SUBJECT TO THE METHOD OF VALUATION OUTLINED IN RULE 3 OF THE INCOME- TAX RULES.(EMPHASIS OURS) IN THE BUDGET SPEECH AT PARA 60 REPORTED IN 273 ITR (ST.) 25, AT PAGE 56, IT IS OBSERVED AS FOLLOWS: I HAVE LOOKED INTO THE PRESENT SYSTEM OF TAXING PE RQUISITES AND I HAVE FOUND THAT MANY PERQUISITES ARE DISGUISED AS FRINGE BENEFITS, AND E SCAPE TAX. NEITHER THE EMPLOYER NOR THE EMPLOYEE PAYS ANY TAX ON THESE BENEFITS WHICH ARE C ERTAINLY OF CONSIDERABLE MATERIAL VALUE. AT PRESENT WHERE THE BENEFITS ARE FULLY ATTRIBUTABL E TO THE EMPLOYEE THEY ARE TAXED IN THE HANDS OF THE EMPLOYEE: THAT POSITION WILL CONTINUE. IN ADDITION, I NOW PROPOSE THAT WHERE THE BENEFITS ARE USUALLY ENJOYED COLLECTIVELY BY THE EM PLOYEES AND CANNOT HE ATTRIBUTED TO INDIVIDUAL EMPLOYEES, THEY SHALL BE TAXED IN THE HA NDS OF THE EMPLOYER. (EMPHASIS OURS) 8. FROM THE ABOVE, IT IS CLEAR THAT WHERE PERQUISITES/ BENEFITS WHICH ARE FULLY ATTRIBUTABLE TO THE EMPLOYEE AND ARE TAXED IN THEIR HANDS, WOULD BE CONTINUED TO BE TAXED UNDER THE EXISTING PROVISIONS OF SECTION 17(2) OF THE ACT. ONLY IN CAS E WHERE THE BENEFITS ARE USUALLY ENJOYED COLLECTIVELY BY THE EMPLOYEES AND CANNOT BE ATTRIBU TED TO AN INDIVIDUAL EMPLOYEE, THEY SHALL BE TAXED IN THE HANDS OF THE EMPLOYER. 9. IN SUB-SECTION (3) OF SECTION 115WB IT IS MADE CLEAR THAT SECTION 115WB(1)(A), DOES NOT I.T.A. NO. 3999/MUM/2010 I.T.A. NO. 2423/MUM/2011 MAHINDRA & MAHINDRA 8 INCLUDE, SUCH PERQUISITE IN RESPECT OF WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEES. 10. IN THE CASE ON HAND, TAX IS PAYABLE ON MEDICAL ADVANCE AND IN CERTAIN CASES TAX HAS BEEN PAID. ONLY WHERE BILLS HAVE BEEN PRODUCED BY T HE EMPLOYEE TO THE EMPLOYER IT WAS A CASE OF REIMBURSEMENT AND TO THE EXTENT OF THE BENE FIT GIVEN IN 17(2) PROVISO (V) THE EMPLOYEE NEED NOT PAY TAX. THIS IS NOT A CASE WHERE THE ATTR IBUTION OF PERSONAL BENEFITS DIRECTLY TO AN EMPLOYEE POSES OF PROBLEM OR A CASE WHERE IT IS NOT FEASIBLE TO TAX THE BENEFIT IN QUESTION IN THE HANDS OF THE EMPLOYEE. IT IS ONLY A CASE WHERE A BENEFIT ABOVE A CERTAIN SPECIFIED AMOUNT ONLY IS LIABLE TO BE TAXED IN THE HANDS OF THE EMPL OYEE. SUCH CASE, IN OUR HUMBLE OPINION, DOES NOT CONSTITUTE FRINGE BENEFIT IN SECTION 115WB OF THE ACT.. RESPECTFULLY FOLLOWING THE ABOVE REFERRED JUDG MENT OF THE COORDINATING BENCH WE DECIDE THE GROUND NO.2 IN FAVOUR OF THE ASSESSEE-CO MPANY. AS A RESULT APPEAL FILED FOR AY 2007-08 STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2012 SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& /ACCOUNTANT MEMBER MUMBAI, 1% DATE: 16 TH NOVEMBER, 2012 TNMM %!0 %!0 %!0 %!0 , ,, , )-2 )-2 )-2 )-2 3!2/- 3!2/- 3!2/- 3!2/- / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE *2- )- //TRUE COPY// %!0 %!0 %!0 %!0 / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI