KOTAK MAHINDRA BANK LIMITED, MUMBAI V. DCIT, RANGE - 3(2), MUMBAI

ITA 2656/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79517 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA
• Keywords: Gift; Business expenditure; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A B ENCH, MUMBAI . , !' , #$ %&'( , #) *+ # ' BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ I.T.A. NO. 2656/MUM/2013 ( , , , , / ASSESSMENT YEAR :2008-09 KOTAK MAHINDRA BANK LTD., 36-38A NARIMAN BHAVAN, 227, NARIMAN POINT, MUMBAI-400 021 / VS. THE DCIT, RANGE 3(2), AAYAKAR BHAVAN, MUMBAI-400 020 +- #) ./ ./ ./ PAN/GIR NO. : AAACK 4409J ( -0 / APPELLANT ) .. ( 12-0 / RESPONDENT ) -0 3 # / APPELLANT BY: SHRI FARROKH IRANI 12-0 4 3 # / RESPONDENT BY: SHRI SAMBIT MISHRA 4 5) / DATE OF HEARING :09.07.2014 6, 4 5) / DATE OF PRONOUNCEMENT :23.07.2014 *#7 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-4, MUMBAI DT.23.1.2013 PERTAINING TO A.Y. 20 08-09. 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: GROUND NO.1 INVALID RE-ASSESSMENT PROCEEDINGS ITA NO. 2656/M/2013 2 1. THE COMMISSIONER OF INCOME TAX (APPEALS) 4 (HEREINAFTER REFERRED AS TO THE CIT(A)) ERRED IN CONFIRMING THE REASSESSMENT PROCEEDINGS INITIATED U /S 115WG OF THE INCOME TAX ACT, 1961 (THE ACT) BY TH E ASSESSING OFFICER. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT: A. THE ENTIRE REOPENING PROCEEDINGS U/S 148 ARE BAD I N LAW B. ALL MATERIAL FACTS REGARDING THE FBT WERE TRULY AND FULLY DISCLOSED IN THE INCOME TAX RETURN AND IN TAX AUDIT REPORT. C. NO FRESH MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO AND THE ASSESSMENT HAS BEEN REOPENED BASED ON THE S AME FACTS WHICH WERE AVAILABLE ON RECORD AND SUCH REOPE NING TANTAMOUNT TO CHANGE OF OPINION. GROUND NO. 2 FBT IS NOT CHARGEABLE WHEN THERE IS NO FRINGE BENEFIT PROVIDED TO THE EMPLOYEES 1. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.6,73,07,926 BEING VALUE OF FRINGE BENEFIT ON THE EXPENDITURE OF RS.47,1I,61,292 INCURRED BY THE APPE LLANT ON TELEPHONE, TRAVEL, CONFERENCE & MEETING, AND BUSINE SS PROMOTION EXPENSES. 2. THE APPELLANT THEREFORE, PRAYS THAT THE AO BE DI RECTED TO DELETE THE ADDITION OF RS.6,73,07,926 BEING VALUE O F FRINGE BENEFIT ON EXPENDITURE OF RS.47,11,61,292 FOR THE P URPOSE OF CALCULATING FRINGE BENEFIT TAX (FBT), GROUND NO.3 CONFERENCE & MEETING 1. THE CIT(A) ERRED IN HOLDING THAT EXPENDITURE OF RS.8,72,84,455 INCURRED BY THE APPELLANT ON CONFERE NCE AND MEETING WAS LIABLE TO THE LEVY OF FBT AS THIS EXPEN SE DID NOT RESULT IN ANY BENEFIT TO THE EMPLOYEES. 2. THE APPELLANT THEREFORE, PRAYS THAT THE SAID AMO UNT BE EXCLUDED FROM THE LEVY OF FBT AS CLAIMED BY APPELLA NT. ITA NO. 2656/M/2013 3 GROUND NO.4 BUSINESS PROMOTION EXPENSES 1. THE CIT(A) ERRED IN HOLDING THAT EXPENDITURE OF RS.8,45,52,043 INCURRED BY THE APPELLANT ON BUSINES S PROMOTION WAS LIABLE TO THE LEVY OF FBT AS THIS EXP ENSE DID NOT RESULT IN ANY BENEFIT TO THE EMPLOYEES. 2. THE APPELLANT THEREFORE, PRAYS THAT THE SAID AMO UNT BE EXCLUDED FROM THE LEVY OF FBT AS CLAIMED BY APPELLA NT. GROUND NO.5 MOBILE PHONE EXPENSES 1. THE CIT(A) ERRED IN HOLDING THAT EXPENDITURE OF RS.7,09,20,891 INCURRED BY THE APPELLANT ON MOBILE PHONE EXPENSES WAS LIABLE TO THE LEVY OF FRINGE BENEFIT T AX AS THIS EXPENSES DID NOT RESULT IN ANY BENEFIT TO THE EMPLO YEES. 2. THE APPELLANT THEREFORE, PRAYS THAT THE SAID AMO UNT BE EXCLUDED FROM THE LEVY OF FBT AS CLAIMED BY APPELLA NT. GROUND NO.6 TRAVELLING EXPENSES (DOMESTIC & FOREIGN FARE) 1. THE CIT(A) ERRED IN HOLDING THAT EXPENDITURE OF RS.17,94,95,549 INCURRED BY THE APPELLANT ON TRAVEL WAS LIABLE TO THE LEVY OF FRINGE BENEFIT TAX AS THIS EX PENSES DID NOT RESULT IN ANY BENEFIT TO THE EMPLOYEES. 2. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE THE BENEFIT, IF ANY, WAS NOT COLLECTIVE IN NATURE AND T HEREFORE DID NOT FALL WITHIN THE SCOPE OF FBT. GROUND NO.7 TRAVELLING EXPENSES (HOTEL LODGING & BOARDING) 1. THE CIT(A) ERRED IN HOLDING THAT EXPENDITURE OF RS.4,89,08,354 INCURRED BY THE APPELLANT ON TRAVEL WAS LIABLE TO THE LEVY OF FRINGE BENEFIT TAX AS THIS EX PENSES DID NOT RESULT IN ANY BENEFIT TO THE EMPLOYEES. ITA NO. 2656/M/2013 4 2. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE THE BENEFIT, IF ANY, WAS NOT COLLECTIVE IN NATURE AND T HEREFORE DID NOT FALL WITHIN THE SCOPE OF FBT. 3. WITH GROUND NO. 1 THE ASSESSEE CLAIMS THAT THE E NTIRE REOPENING PROCEEDINGS INITIATED U/S. 115WG OF THE ACT ARE BAD IN LAW AS NO FRESH MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO AND T HE ASSESSMENT HAS BEEN REOPENED BASED ON THE SAME FACTS WHICH WERE AV AILABLE ON RECORD. 4. THE ASSESSEE IS IN THE BUSINESS OF BANKING. THE ORIGINAL RETURN WAS FILED ON 299.2008 DECLARING A VALUE OF FRINGE BENE FIT AT RS. 33,65,98,960/-. THE SAID RETURN WAS PROCESSED U/S. 115 WE(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSMENT PROCEEDINGS WERE REOPE NED U/S. 115 WG OF THE ACT. THE REASONS FOR THE REOPENING OF THE ASSE SSMENT READ AS UNDER: THE ASSESSEE HAS FILED RETURN OF FRINGE BENEFIT U/ S I15WD ON 29.09.2008 DECLARING VALUE OF FRINGE BENEFIT OF RS 33,65,98,960/-. THE ASSESSEE HAS OFFICERED THE FOLL OWING EXPENSES (AS PER CHART BELOW,) IN ARRIVING AT THE V ALUE OF FRINGE BENEFIT TAX, S. NO. NATURE EXPENSES EXP. AMOUNT RS. % OF EXPENSES VALUE OF FRINGE BENEFIT 1. EMPLOYEES WELFARE EXPENSES 136,829,594 20% 27,365,919 2. ENTERTAINMENT EXPENSES 1,073,835 20% 214,767 3. FESTIVAL CELEBRATION EXPENSES 3,072,775 50% 1,536,388 4. USE OF ANY CLUB FACILITIES 1,186,370 50% 593,185 5. GIFTS 1,734,160 50% 867,080 6. MOTOR CAR EXPENSES 50,482,675 20% 10,096,535 7. ESOP 295,925,087 100% 295,925,087 TOTAL 490,304,496 336,598,960 ITA NO. 2656/M/2013 5 FROM THE NOTES TO ANNEXURE VALUE OF FRINGE BENEFI T IN THE TAX AUDIT REPORT IT IS SEEN THAT THE ASSESSEE HAS N OT CONSIDERED THE EXPENSES ON ACCOUNT OF CONFERENCE AND MEETING, B USINESS PROMOTION AND GIFT EXPENSES, TELEPHONE EXPENSES, TRAVEL EXPENSES, CONVEYANCE EXPENSES, HOTEL/LODGING & B OARDING EXPENSES FOR FBT. THE ASSESSEE HAS STATED THAT ABO VE EXPENSES ARE NORMAL LEGITIMATE BUSINESS EXPENDITURE AND NOT PERT AINING TO WELFARE OF EMPLOYEES AND HENCE NOT LIABLE TO FRINGE BENEFIT TAX U/S 115 WA OF THE I.T ACT. . HOWEVER, IT IS SUBMITTED THAT SECTION 115 WB (2) PR OVIDES THAT THE FRINGE BENEFIT SHALL BE DEEMED TO HAVE BEE N PROVIDED BY THE EMPLOYER TO HIS EMPLOYEE IF THE EMPLOYER DURING THE COURSE OF HIS BUSINESS INCURRED INTER ALIA EXPENDITURE SUCH A S TELEPHONE EXPENSES TRAVEL FARE BUSINESS PROMOTION AND HOT EL AND BOARDING. FURTHER, IT IS OBSERVED THAT THE SAID EX PENSES HAVE BEEN TREATED AS FRINGE BENEFIT IN EARLIER YEARS IN ASSES SEE S OWN CASE AND THE LD CIT(A) VIDE HIS ORDER FOR ASSESSMENT YEA R 2006-07 HAS TREATED THESE EXPENSES (EXCEPT OFFICE TELEPHONE LAN DLINE EXPENSES AND CONVEYANCE AN CAR HIRE CHARGES) AS BEING LIABL E TO FBT TAX. IN VIEW OF THE ABOVE PROVISIONS, EXPENDITURE AMOUNT ING TO RS. 47,11,61,293/- (AS PER DETAILS BELOW) HAS NOT BEEN CONSIDERED IN ARRIVING AT THE VALUE OF FRINGE BENEFIT. S.NO. NATURE EXPENSES EXPENDITURE INCURRED (RS.) % OF FRINGE BENEFIT VALUE OF FRINGLE BENEFIT (RS.) 1. CONFERENCE & MEETING 87,284,455 20% 17,456,891 2. BUSINESS PROMOTION & GIFT EXPENSES 84,552,043 20% 16,910,400 3. TELEPHONE-MOBILE EXPS 70,920,891 20% 14,184,178 4. TRAVEL EXPS. DOMESTIC & FOREIGN FARE 179,495,549 5% 8,974,777 5. USE OF HOTEL/LODGING AND BOARDING 48,908,354 20% 9,781,671 TOTAL 471,161,292 67,307,926 ITA NO. 2656/M/2013 6 SINCE THE ASSESSEE HAS NOT OFFERED THE ABOVE EXPENS ES TO FRINGE BENEFIT TAX, I HAVE REASON TO BELIEVE THAT F RINGE BENEFITS AMOUNTING TO RS 47.11 CRORE CHARGEABLE TO TAX HAVE ESCAPED ASSESSMENT, HENCE, THE ASSESSMENT PROCEEDINGS ARE R EOPENED U/S 1I5WG OF THE I.T. ACT 5. THE ASSESSEE OBJECTED TO THE REOPENING PROCEEDIN GS U/S. 115WG OF THE ACT. THE AO WAS OF THE OPINION THAT WHERE THE REGULAR ASSESSMENT HAS NOT BEEN COMPLETED U/S. 143(3) AND THE RETURN H AS BEEN PROCESSED U/S. 143(1), AS A RESULT OF WHICH INCOME HAS BEEN ESCAPE D ASSESSMENT, THE REASSESSMENT WITHIN 4 YEARS IS PERMISSIBLE. THE AO THEREAFTER WENT ON TO COMPUTE THE FRINGE BENEFIT TAX FOR EXPENDITURE INCU RRED ON (1) CONFERENCE & MEETING (2) BUSINESS PROMOTION EXPENSES (3) TELEP HONE-MOBILE EXPENSES (4) TRAVEL EXPENSES DOMESTIC & FOREIGN AND (5) USE OF HOTEL/LODGING AND BOARDING. 6. AGGRIEVED, ASSESSEE CARRIED THE MATTER BEFORE TH E LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE ONCE AGAIN CHAL LENGED THE VALIDITY OF REASSESSMENT PROCEEDINGS. THE LD. CIT(A) DID NOT A CCEPT THE CONTENTION OF THE ASSESSEE. THE LD. CIT(A) OBSERVED THAT NO A SSESSMENT WAS MADE OF THE FBT BY THE AO AND THE RETURN WAS MERELY PROC ESSED AND IT IS WITHIN 4 YEARS OF ASSESSMENT YEARS THAT THE CASE HA S BEEN REOPENED. ACCORDING TO THE LD. CIT(A), THE AO HAS RIGHTLY REO PENED THE CASE AND THERE IS NO IRREGULARITY IN ISSUE OF NOTICE FOR REO PENING. ON MERIT OF THE CASE, THE LD. CIT(A) FOLLOWED THE DECISION OF HIS P REDECESSOR FOR A.Y. 2006-07. 7. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE REITERATED THAT THE REOPENING OF THE A SSESSMENT IS BAD IN LAW INASMUCH AS THERE WAS NO NEW TANGIBLE MATERIAL EVID ENCE WHICH ITA NO. 2656/M/2013 7 PROMPTED THE AO TO REOPEN THE ASSESSMENT. IT IS TH E SAY OF THE LD. COUNSEL THAT EVEN IF THE ORIGINAL RETURN WAS PROCES SED U/S. 115WE(1) AND NO REGULAR ASSESSMENT HAS BEEN MADE U/S. 115 WE(3) OF THE ACT, THE ASSESSMENT CANNOT BE REOPENED UNLESS THERE IS SOME NEW TANGIBLE MATERIAL EVIDENCE. FOR THIS PROPOSITION, THE LD. COUNSEL ST RONGLY RELIED UPON THE DECISION OF THE HONBLE DELHI COURT IN THE CASE OF CIT VS ORIENT CRAFT LTD. 354 ITR 536. THE LD. COUNSEL FURTHER SUPPORTE D HIS CLAIM BY THE THIRD MEMBER DECISION OF THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF TELCO DADAJEE DHACKJEE LTD. IN ITA NO. 4613/M/05. 8. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E FINDINGS OF THE AUTHORITIES BELOW AND RELIED UPON THE DECISION OF T HE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF EMA INDIA LTD. VS ACIT 2 26 CTR 659. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISIO NS RELIED UPON BY THE RIVAL PARTIES. IT IS NOT IN DISPUTE THAT THE RETUR N WAS PROCESSED U/S. 115WE(1) OF THE ACT. THE RETURN WAS ACCOMPANIED BY STATUTORY REPORT WHEREIN IT WAS SPECIFICALLY MENTIONED THAT THE ASSE SSEE HAS NOT CONSIDERED THE EXPENSES ON ACCOUNT OF CONFERENCE AND MEETING, BUSINESS PROMOTION TELEPHONE-MOBILE EXPENSES, TRAVEL EXPENSES, LODGING AND BOARDING EXPENSES FOR FBT. IT WAS ALSO MADE VERY CLEAR IN TH E ORIGINAL RETURN ITSELF IN THE STATUTORY AUDIT REPORT THAT THESE E XPENSES HAVE NOT BEEN CONSIDERED FOR THE LEVY OF FBT BECAUSE THEY ARE LEGITIMATE BUS INESS EXPENDITURE AND NOT PERTAINING TO WELFARE OF EMPLOYEES AND HENCE NO T LIABLE TO FBT U/S. 115WA OF THE ACT. IT IS NOT IN DISPUTE THAT THESE DETAILS WERE VERY MUCH BEFORE THE AO WHEN HE PROCESSED THE RETURN U/S. 115 WE(1) OF THE ACT. THE FOLLOWING OBSERVATIONS OF THE HONBLE DELHI HIG H COURT IN THE CASE OF ORIENT CRAFT LTD (SUPRA), AT THIS JUNCTURE WOULD BE VERY RELEVANT. ITA NO. 2656/M/2013 8 THE EXPRESSION 'REASON TO BELIEVE' CANNOT HAVE TWO DIFFERENT STANDARDS OR SETS OF MEANING, ONE APPLICA BLE WHERE THE ASSESSMENT WAS EARLIER MADE UNDER SECTION 143(3) OF THE INCOME- TAX ACT, 1961, AND ANOTHER APPLICABLE WHERE AN INTI MATION WAS EARLIER ISSUED UNDER SECTION 143(1). IT FOLLOWS THA T IT IS OPEN TO THE ASSESSEE TO CONTEND THAT NOTWITHSTANDING THAT THE A RGUMENT OF 'CHANGE OF OPINION' IS NOT AVAILABLE TO HIM, IT WOU LD STILL BE OPEN TO HIM TO CONTEST THE REOPENING ON THE GROUND THAT THERE WAS EITHER NO REASON TO BELIEVE OR THAT THE ALLEGED REASON TO BELIEVE IS NOT RELEVANT FOR THE FORMATION OF THE BELIEF THAT INCOM E CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN DOING SO, IT IS FURT HER OPEN TO THE ASSESSEE TO CHALLENGE THE REASONS RECORDED UNDER SE CTION 148(2) ON THE GROUND THAT THEY DO NOT MEET THE STANDARDS SET IN THE VARIOUS JUDICIAL PRONOUNCEMENTS. 10. WE FIND THAT THE REASONS DISCLOSED BY THE AO TH AT THERE WAS ESCAPEMENT OF INCOME ON GOING THROUGH THE RETURN OF FBT FILED BY THE ASSESSEE AFTER HE ACCEPTED THE RETURN U/S. 115WE(1) WITHOUT SCRUTINY AND NOTHING MORE. THIS IS NOTHING BUT A REVIEW OF THE EARLIER PROCEEDINGS AND AS OBSERVED BY THE HONBLE DELHI HIGH COURT (SU PRA) ABUSE OF POWER BY THE AO. WE FURTHER FIND THAT THERE IS NO THING IN THE REASONS RECORDED TO SHOW THAT ANY TANGIBLE MATERIAL HAD COM E INTO THE POSSESSION OF THE AO SUBSEQUENT TO THE ISSUE OF INTIMATION. T HE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS KE LVINATOR OF INDIA LTD. 320 ITR 561 VERY MUCH APPLY EVEN IN RESPECT O F THE ASSESSMENTS MADE U/S. 143(1)/115WE(1) OF THE ACT. THE DECISION RELIED UPON BY THE LD. DR DO NOT SUPPORT THE REVENUE AUTHORITIES FIRST LY IT IS DATED 16 TH SEPTEMBER, 2009. THE DECISION OF THE HONBLE DELHI HIGH COURT IS DATED 12.12.2012 AND SECONDLY IT HAS RELIED UPON THE DECI SION OF THE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNILAL PATEL VS ACIT 148 CTR 62 WHICH HAS BEEN DISTINGUISHED BY THE FULL BENCH OF T HE HONBLE DELHI ITA NO. 2656/M/2013 9 HIGH COURT IN THE CASE OF KELVINATOR OF INDIA LTD. WHICH WAS SUBSEQUENTLY CONFIRMED BY THE HONBLE SUPREME COURT . 10.1. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF ORIENT CRAFT LTD. AS DISTINGUISHED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ACIT VS RAJESH JHAVERI STOCK BROKERS P VT. LTD. 291 ITR 500 AND HAS EXPLAINED THE RATIO LAID DOWN BY THE HONBL E SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA (SUPRA) AND HAS HE LD THAT EVEN IN THE CASES OF ASSESSMENT U/S. 143(1) {IN THE PRESENT CASE U/S. 115WE(1)}, THE REOPENING OF THE ASSESSMENT CANNOT BE MADE UNLESS T HERE IS SOME NEW TANGIBLE MATERIAL EVIDENCE TO SUPPORT THE REOPENING OF THE ASSESSMENT. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ORIENT CRAFT LTD (SUPRA), WE SET ASIDE THE NOTICE ISSUED U/S. 115WG AND QUASH THE REASSESSMENT ORDER. 11. AS WE QUASHED THE REASSESSMENT ORDER, WE DO NOT FIND IT NECESSARY TO GO ON THE MERITS OF THE CASE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY, 2014 . *#7 4 , ) # 8 9*: 23.7.2014 4 ; SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !' /VICE PRESIDENT #) *+ / ACCOUNTANT MEMBER MUMBAI; 9* DATED : 23.7.2014 . . ./ RJ , SR. PS ITA NO. 2656/M/2013 10 *#7 *#7 *#7 *#7 4 44 4 15% 15% 15% 15% <#%,5 <#%,5 <#%,5 <#%,5 / COPY OF THE ORDER FORWARDED TO : 1. -0 / THE APPELLANT 2. 12-0 / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. %>; 15 , , / DR, ITAT, MUMBAI 6. ; ? / GUARD FILE. *#7 *#7 *#7 *#7 / BY ORDER, 2%5 15 //TRUE COPY// / . . . . (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI