DCIT, New Delhi V. M/s. Terex Vectra Equipment Pvt. Ltd., New Delhi

ITA 2880/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7387 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 10-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 09-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM BATRA
• Assessee Lawyers: ASEEM CHAWLA
• Keywords: Additional evidence
• Section: 115WB(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI I.P.BANSAL, JM AND SHRI R.C.SHARMA, AM ITA NO.2880/DEL/2010 ASSESSMENT YEAR : 2006-07 DY.COMMISSIONER OF INCOME TAX, CIRCLE-16(1), NEW DELHI. VS. M/S TEREX VECTRA EQUIPMENT PVT.LTD., A-54, KAILASH COLONY, NEW DELHI 110 048. PAN NO.AABCT8105H. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKRAM BATRA, DR. RESPONDENT BY : SHRI ASEEM CHAWLA, ADVOCATE AND SHRI GAGAN KUMAR, CA. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 26.3.2010 FOR THE AY 2006-07, IN THE MATTER OF ORDE R PASSED U/S 115WE(3) OF THE IT ACT, 1961. 2. THE REVENUE HAS TAKEN FOLLOWING GROUND IN THE ME MO OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT BROUGHT OUT BY T HE ASSESSING OFFICER THAT THE FREE SUPPLY OF ITEMS WAS GIVEN ALO NGWITH THE MAIN PURCHASE TO THE CUSTOMER, AND LABELED AS THESE TRA NSACTION DO NOT HAVE ANY COMMERCIAL VALUE, WHICH ESTABLISHES THAT EXPENSES WERE MADE FOR SALES PROMOTION, WHICH IS COVERED UNDER THE FRINGE BENEFIT ACT, U/S 115WB(2)(D) OF THE ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF CONSTRUCTION AND MATERIAL HANDLING EQUIPMENTS. WHI LE FRAMING ASSESSMENT U/S 115WE(3) OF THE ACT, THE AO OBSERVED THAT ASSESSEE HAS INCURRED CERTAIN ITA-2880/DEL/2010 2 EXPENDITURE ON FREE COST OF MATERIAL SUPPLIED TO IT S CUSTOMERS. THE AO ASKED THE ASSESSEE AS TO WHY FRINGE BENEFIT TAX (FBT) COULD N OT BE LEVIED UNDER THE HEAD SALES PROMOTION, WITH REGARD TO FREE COST OF MATERI AL SUPPLIED TO THE CUSTOMERS. IT WAS EXPLAINED BEFORE THE AO THAT EXPENDITURE INCURR ED ON FREE SUPPLY OF MATERIALS TO THE CUSTOMERS TO WHOM EQUIPMENTS AND MACHINERIES WERE SUPPLIED ARE ACTUALLY IN THE NATURE OF DISCOUNT OR REBATE ALLOWED TO THE WHOLESALE DEALERS OR CUSTOMERS FROM THE LISTED PRICE OF THE MACHINERY WHICH MERELY REPRESENTS LESSER REALIZATION, OF SALE PRICE ITSELF, WHICH DOES NOT AMOUNT TO SALE S PROMOTION. HOWEVER, THE AO DID NOT AGREE WITH THE ASSESSEES CONTENTION AND HE LD THAT MACHINERY WAS SOLD BY THE ASSESSEE AND BILLED IN A DIFFERENT BILL AND THE ITEMS SUPPLIED FREE OF COST TO THE SAME CUSTOMER THROUGH A DIFFERENT BILL, WHERE IT WA S WRITTEN FREE SUPPLIED BELOW THE BILL. IT WAS ALSO WRITTEN THAT FREE SUPPLY WAS AGAINST THE MACHINERY AND THIS TRANSACTION DOES NOT HAVE ANY COMMERCIAL VALUE. TH E AO HELD THAT UNDER FBT, DISCOUNT IS CONSIDERED AS PART OF SALE WHEREAS GOOD S GIVEN FREE OF COST ARE CONSIDERED AS SALES PROMOTION. ACCORDINGLY, AN A DDITION OF 20% OF RS.99,83,147/- EQUIVALENT TO RS.19,96,629/- WAS MAD E U/S 115WB(2)(D) OF THE ACT. 4. BY THE IMPUGNED ORDER, CIT(A) HELD THAT SUPPLY O F FREE MATERIAL TO THE CUSTOMER DOES NOT AMOUNT TO SALES PROMOTION BUT IS IN THE NATURE OF DISCOUNT, WHICH DOES NOT COME WITHIN THE PURVIEW OF FBT. AFT ER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS, THE CIT(A) CONCLUDED THAT DEEMING FICTION UNDER THE PROVISIONS OF FBT WAS TO CURB TAX EVASION PRACTICE BY THE COMPANIES BY GIVING THEIR EMPLOYEES NON CASH BENEFITS IN LIEU OF THE TA XABLE SALARIES. THE CIT(A) HELD THAT DEEMING PROVISIONS CONTAINED IN SECTION 115WB( 2) OF THE ACT WOULD HAVE TO BE INTERPRETED STRICTLY AND CANNOT EXCEED THE OBJEC T FOR WHICH IT WAS CREATED. AGGRIEVED BY THIS ORDER OF CIT(A), THE REVENUE IS I N FURTHER APPEAL BEFORE US. 5. SHRI VIKRAM BATRA, CIT-DR APPEARED ON BEHALF OF THE DEPARTMENT AND CONTENDED THAT FREE SUPPLY OF MATERIAL BY THE ASSES SEE COMPANY WAS TO PROMOTE ITS ITA-2880/DEL/2010 3 BUSINESS, THEREFORE ESSENTIALLY EXPENDITURE SO INCU RRED THEREON WAS SALES PROMOTION EXPENSES ON WHICH AO HAS CORRECTLY LEVIED FRINGE BENEFIT TAX. 6. ON THE OTHER HAND, SHRI ASEEM CHAWLA, ADVOCATE A PPEARED ON BEHALF OF ASSESSEE AND CONTENDED THAT THE ASSESSEE COMPANY HA S SUPPLIED ACCESSORIES TO ITS CUSTOMERS IN TERMS OF THE PURCHASE ORDER AND THIS T RANSACTION OF SUPPLY OF FREE MATERIAL AGAINST THE MAIN MACHINERY, DOES NOT HAVE ANY COMMERCIAL VALUE, NOR ANY EXCISE DUTY OR SALES TAX ETC. WAS CHARGED ON THESE GOODS. HE CONTENDED THAT EXPENDITURE INCURRED ON FREE ACCESSORIES SUPPLIED T O THE CUSTOMERS ARE ESSENTIALLY IN THE NATURE OF SELLING EXPENSES AND MORE PARTICUL ARLY IN THE NATURE OF DISCOUNT AND NOT EXPENSES FOR SALES PROMOTION. AS PER LEARN ED AR, ONLY EXPENDITURE INCURRED PRIOR TO UNDERTAKING SALES, WILL COME UNDE R THE PURVIEW OF SALES PROMOTION, EXPENDITURE INCURRED AFTER ACTUAL SALES ARE EFFECTED. HE ALSO PLACED RELIANCE ON THE DECISION OF ITAT BANGALORE BENCH IN THE CASE OF M/S MESCOM 2010-TIOL-419, ORDER DATED 19 TH MAY, 2010, WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 115WB(2) ARE ATTRACTED WITH R ESPECT TO ONLY THOSE BENEFITS WHICH ARE GIVEN TO THE EMPLOYEES DIRECTLY OR INDIRE CTLY AND THE SAME WOULD BE TAXABLE UNDER CHAPTER XII-H, AND THE EXPENDITURE WH ICH IS INCURRED FOR OTHER THAN EMPLOYEES, ARE OUTSIDE THE SCOPE OF PROVISIONS OF S ECTION 115WB(2), WOULD NOT COME WITHIN THE PURVIEW OF FBT. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED ON VA RIOUS CASE LAWS REFERRED BY THE LD.AO AND CIT(A) IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY THE LEARNED AR DURING THE COURSE OF HEARING BEFORE US. FROM THE R ECORD, WE FOUND THAT ASSESSEE COMPANY WAS IN THE BUSINESS OF MANUFACTURING AND SE LLING OF CONSTRUCTION AND MATERIAL HANDLING EQUIPMENTS. AS PER THE TERMS OF THE SALES, THE ASSESSEE WAS ALSO SUPPLYING ACCESSORIES OF THE MACHINES FREE OF COST. SINCE THE ACCESSORIES WERE SUPPLIED SUBSEQUENT TO SALE, SEPARATE BILLS WERE RA ISED, WHEREIN IT WAS CLEARLY MENTIONED THAT IT IS FREE SUPPLIES AGAINST THE MACH INE AND THIS TRANSACTION DOES NOT ITA-2880/DEL/2010 4 HAVE ANY COMMERCIAL VALUE. NEITHER ANY SALES TAX N OR ANY EXCISE DUTY WAS CHARGED WITH RESPECT TO VALUE OF THE FREE MATERIAL SUPPLIED THROUGH THESE BILLS. THE CIT(A) HAS ALSO CALLED A REMAND REPORT FROM THE AO. THE CIT(A) CONSIDERED THE ADDITIONAL EVIDENCE FURNISHED BEFORE HIM UNDER RULE 46A AFTER DULY CALLING A REMAND REPORT FROM THE AO. THE CIT(A) HAS FORWARDE D THE COPY OF COMMUNICATION RECEIVED FROM THE CUSTOMERS AND COPY OF PURCHASE ORDER WHEREIN CUSTOMER AGREED FOR SELLING PRICE AGAINST CERTAIN D ISCOUNT AND WHICH HAS BEEN AGREED BY THE ASSESSEE COMPANY. THE AO HAS TREATED THE FREE SUPPLY OF ACCESSORIES AS EXPENDITURE ON PUBLICITY, SO AS TO B RING THE SAME WITHIN THE NET OF FBT. UNDER THE PROVISIONS OF SECTION 115WB(F), THE FACILITIES PROVIDED BY THE ASSESSEE COMPANY TO ITS EMPLOYEES/OFFICERS, ARE IN THE NATURE OF FRINGE BENEFITS WHICH ARE LIABLE TO TAX UNDER FBT. HOWEVER, THE EX PENDITURE INCURRED ON FREE SUPPLY OF MATERIAL IN RESPECT OF THE MACHINERY/EQUI PMENTS ALREADY SUPPLIED BY THE ASSESSEE COMPANY IN TERMS OF ITS NEGOTIATION WITH T HE CUSTOMER, CANNOT BE COVERED UNDER THE DEFINITION OF FRINGE BENEFIT TAX. NEITHE R EMPLOYEE NOR OFFICER OF THE COMPANY ARE GOING TO GET ANY ADVANTAGE OUT OF SUCH SUPPLY OF ACCESSORIES, NOR SUCH TRANSACTION IS HAVING ANY COMMERCIAL VALUE. T HE EXPENDITURE SO INCURRED BY THE ASSESSEE COMPANY ON FREE SUPPLY OF ACCESSORIES WAS NOT FOR PROMOTING SALES, BECAUSE SALES HAVE ALREADY BEEN EFFECTED AND THE FR EE SUPPLY OF ACCESSORIES WAS JUST TO COMPLETE AGREED TERMS OF SALES, WHICH CAN A T THE BEST BE TERMED AS A DISCOUNT ON SALES. EXPENDITURE ON SALES PROMOTION IS NECESSARILY INCURRED TO ADVERTISE THE PRODUCT, WHERE A MANUFACTURER MAY INT END TO POPULARIZE ITS PRODUCT BY PUBLISHING AND ADVERTISING OR BY SEVERAL OTHER M ODES, WHEREAS COST INCURRED AFTER SALE WILL NOT COME UNDER THE PURVIEW OF SALES PROMOTION. EVEN CIRCULAR NO.8/2005 DATED 29.8.2005 ISSUED BY CBDT ALSO PROVI DES THAT SALE, DISCOUNT OR REBATES ALLOWED TO WHOLESALE DEALERS OR CUSTOMERS F ROM THE RETAIL PRICE MERELY REPRESENTS LESSER REALIZATION OF SALE PRICE ITSELF. THE BONUS POINT GIVEN TO CREDIT CARD CUSTOMERS WAS ALSO HELD TO BE IN THE NATURE OF DEFERRED SALE DISCOUNT. ACCORDINGLY, DISCOUNTS, REBATES OR BONUS POINT ALLO WED TO CUSTOMERS OR WHOLESALE DEALERS WERE HELD TO BE IN THE NATURE OF SELLING EX PENSES OUTSIDE THE SCOPE OF ITA-2880/DEL/2010 5 PROVISIONS OF CLAUSE (D) OF SUB-SECTION (2) OF SECT ION 115WB OF THE ACT, WHICH IS NOT LIABLE TO FBT. 8. IN VIEW OF THE ABOVE DISCUSSION, WE ARE INCLINED TO AGREE WITH THE LEARNED AR THAT THE ORDER OF THE AO TREATING SUCH FREE SUPP LY OF ACCESSORIES TO ITS CUSTOMERS AS FRINGE BENEFIT LIABLE TO TAX UNDER FBT , WAS DEVOID OF ANY MERIT. THE DETAILED FINDING RECORDED BY CIT(A) HAS NOT BEEN CO NTROVERTED BY THE DEPARTMENT, ACCORDINGLY DOES NOT CALL FOR ANY INTERFERENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST, 2010. SD/- SD/- (I.P.BANSAL) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.08.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-2880/DEL/2010 6