Arvind Fashion Ltd., Ahmedabad V. The Dy.CIT.,Range-1, Ahmedabad

ITA 3508/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68019 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: VARTIK R CHOCKSI
• Keywords: Gift; Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT ME MBER ARVIND FASHIONS LIMITED, AHMEDABAD PAN: AABCA2398D (APPELLANT) VS DCIT, RANGE-1, AHMEDABAD (RESPONDENT) ARVIND PRODUCTS LIMITED, AHMEDABAD PAN: AABCA2391L (APPELLANT) VS DCIT, RANGE-1, AHMEDABAD (RESPONDENT) REVENUE BY: SRI O.P. BATHEJA, SR.D.R. ASSESSEE BY: SRI VARTIK R. CHOCKSI, A.R. DATE OF HEARING : 03-12-2013 DATE OF PRONOUNCEMENT : 13-12-20 13 / ORDER ITA NO. 3508 /AHD/2010 ASSESSMENT YEAR 2006-07 ITA NO. 3509/AHD/2010 ASSESSMENT YEAR 2006-07 I.T.A NOS.3508 & 3509/AHD/2010 A.Y. 2006-07 PAGE NO ARVIND FASHIONS LTD VS. DCIT & ARVIND PRODUCTS LTD VS. DCIT 2 PER : D.K. TYAGI, JUDICIAL MEMBER:- THESE APPEALS HAVE BEEN FILED BY ASSESSSEES AGAINS T THE SEPARATE ORDER OF LD. CIT(A)-VI AHMEDABAD DATED 19-10-2010. 2. THE ONLY ISSUE INVOLVED IN THESE APPEALS IS WHET HER LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO LEVYING FRINGE BENEFI T TAX IN RESPECT OF EXPENSES NOT RELATED TO EMPLOYEES AND THEIR FAMILIE S. 3. SINCE THESE APPEALS HAVE BEEN FILED ON SIMILAR F ACTS, WE ARE DISPOSING THEM BY THIS CONSOLIDATED ORDER BY TAKING THE FACTS OF ITA NO. 3508/AHD/2010. 4. THE AO HAS DEALT THE ISSUE AS UNDER:- 2. IT IS SEEN THAT THE ASSESSEE HAS NOT PAID FBT ON FOLLOWING FRINGE BENEFIT VALUE RELATED TO NON EMPLOYEES. I WELFARE EXPENSES 697 II. BRAND AMBASSADOR/CELEBRITIES 1051000 III ADVERTISING - OTHER MARKETING 29314 7 IV. ADVERTING - EVENT/PROMT 183051 ------------------- TOTAL 1527895 --- --------------- IN THIS REGARD, ON BEING INQUIRED, THE ASSES SEE VIDE SUBMISSION DTD.25/12/2008 REPLIED AS UNDER: - I.T.A NOS.3508 & 3509/AHD/2010 A.Y. 2006-07 PAGE NO ARVIND FASHIONS LTD VS. DCIT & ARVIND PRODUCTS LTD VS. DCIT 3 'YOUR GOOD SELVES HAVE ASKED THE ASSESSEE TO GIVE D ETAILS OF CALCULATION OF FBT. THE ASSESSEE SUBMITS THE SAME VIDE ANNEXURE-4 ENCLOSED HERE WITH. FURTHER, THE ASSESSE E WOULD LIKE TO BRING TO YOUR NOTICE; THAT IN RESPECT OF TH E FBT RELATING TO NON EMPLOYEE EXPENSES, THE ASSESSEE COMPANY HAS ALREADY DEPOSITED THE TAX AMOUNT IN THE ESCROW ACCOUNT AS P ER THE DECISION OF THE GUJARAT HIGH COURT. THE AMOUNT OF F BT ON SUCH NON-EMPLOYEE RELATED EXPENSES WORKS OUT TO RS. 5,14,290/- . AS AGAINST THIS, THE COMPANY HAS DEPOSITED RS.6,4 2,655/- IN SUCH ESCROW ACCOUNT NO 66003677569, OPENED WITH SBS , IF BRANCH, AHMEDABA. THE STAND TAKEN BY THE ASSESSEE AND THE BASIS FOR W ORKING OUT THE LIABILITY FOR FBT, IS EXPLAINED IN NOTE ATTACHE D HEREWITH VIDE ANNEXURE-5 AS EXPLAINED IN THE PACA-4 END 5 OF THE SAID NOT FT, THE ASSESSEE IS ENTITLED TO REFUND OF RS.1,28,365/- . THE REPLY OF THE ASSESSEE HAS BEEN PERUSED AND CONT ENTION OF THE ASSESSEE IS NOT ACCEPTABLE IN VIEW OF SUB SEC.2 OF SEC.115WB OF THE I. T. ACT. IT IS A DEEMING PROVISION AND ASSESSEE I S LIABLE TO TAX. THE SUM OF RS.15,27,895/- AS MENTIONED IN ABOVE TABLE I S ADDED TO TOTAL FRINGE BENEFIT VALUE 5. IN ITA NO. 3509/AHD/2010 TELEPHONE EXPENSES WERE ALSO THERE. ASSESSEES COUNSELS CLARIFICATION THAT ON TELEPHON E EXPENSES RELATING TO EMPLOYEES FRINGE BENEFIT TAX WAS PAID AND ONLY EXPE NSES RELATING TO OTHER THAN EMPLOYEES ARE SUBJECT-MATTER OF THIS APPEAL WA S NOT DISPUTED BY LD. D.R. 6. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS TH AT THE CHARGE OF FRINGE BENEFIT TAX IS LEVIED ON THE EMPLOYER IN RES PECT OF FRINGE BENEFIT PROVIDED BY THE EMPLOYER TO THIS EMPLOYEES. IN VIE W OF THIS, ANY EXPENSE WHICH HAD NOT DIRECTLY OR INDIRECTLY RESULTED INTO THE BENEFITS TO HIS I.T.A NOS.3508 & 3509/AHD/2010 A.Y. 2006-07 PAGE NO ARVIND FASHIONS LTD VS. DCIT & ARVIND PRODUCTS LTD VS. DCIT 4 EMPLOYEES WILL NOT BE COVERED BY PROVISIONS OF FRIN GE BENEFIT TAX. THE AO TAXED THESE EXPENSES WHICH HAVE NO NEXUS WITH THE E MPLOYEE. SINCE THESE EXPENSES ARE NOT FOR THE BENEFIT OF EMPLOYEES, THER E SHOULD NOT BE ANY FRINGE BENEFIT TAX OF SUCH EXPENSES. IN THE ACCOUNTS EXPE NSES MAY HAVE NOMENCLATURE OF THE EXPENSES SIMILAR TO THE ONE MEN TIONED FOR THE PURPOSE OF FRINGE BENEFIT TAX BUT ONE HAS TO SEE WHETHER TH ERE IS ANY BENEFIT TO THE EMPLOYEES FROM SUCH EXPENSES. HOWEVER, LD. CIT(A) CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT A PPELLANT IS COVERED BY THE PROVISIONS OF FRINGE BENEFIT TAX. IT IS LEVIED IN RESPECT OF FRINGE BENEFIT PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES. AS PER SECTION 115WB(2) FRINGE BENEF IT IS DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES IF EMPLOYER HAS INCURRED ANY EXPENSES OR MADE ANY PAYMENT FOR THE P URPOSES MENTIONED IN CLAUSE-A TO CLAUSE-Q. THE VALUE OF THE FRINGE BENEFIT IS TO BE WORKED OUT BY APPLYING A PERCENTAGE GIVEN IN SECTION 115WC. THESE TWO SECTIONS DO NOT GIVE ANY DISCRETION OR CO MPUTATION METHOLOGY THROUGH WHICH THE BENEFIT ACCRUED ONLY TO EMPLOYEES ARE TO BE TAKEN. SINCE THIS IS A DEEMING PROVISION AND VAL UE OF FRINGE BENEFIT ARE ALSO DEEMED AT A PARTICULAR PERCENTAGE, THERE IS HARDLY ANY DISCRETION EITHER WITH APPELLANT OR WITH THE TA X DEPARTMENT TO REDUCE THE LEVY OF FRINGE BENEFIT TAX. SINCE, THE PROVISION AND SECTIONS ARE VERY CLEAR AND THERE IS NO ROOM FOR AN Y CONFUSION, THE LINKING OF THE EXPENSES TO THE BENEFIT OF EMPLOYEE IS NOT NECESSARY. ANY EXPENSES WHICH IS DIRECTLY INCURRED FOR THE PUR POSE OF EMPLOYEE, IS FULLY TAKEN FOR THE PURPOSE OF FRINGE BENEFIT TA X. HOWEVER, OTHER EXPENSES IN THE NATURE OF ENTERTAINMENT, SALE PROMO TION, CONVEYANCE, TRAVELING, GIFTS ETC. MAY HAVE PARTIAL BENEFIT TO T HE EMPLOYEES AND THEREFORE, ONLY A PART IS TREATED AS FRINGE BENEFIT . SINCE, SECTION CLEARLY DEFINED THE VALUE OF FRINGE BENEFIT, NO FUR THER ADJUSTMENT TO THE ITEMS OF EXPENSES DEBITED IN PROFIT AND LOSS AC COUNT IS PERMITTED AND ACCORDINGLY ASSESSING OFFICER IS JUSTIFIED IN A PPLYING THE RATES GIVEN IN THE ACT TO ARRIVE AT THE VALUE OF FRINGE B ENEFIT. I.T.A NOS.3508 & 3509/AHD/2010 A.Y. 2006-07 PAGE NO ARVIND FASHIONS LTD VS. DCIT & ARVIND PRODUCTS LTD VS. DCIT 5 THE DECISION IN THE ORDER OF HON'BLE GUJARAT HIGH C OURT DOES NOT PUT ANY STAY ON THE ASSESSMENT OR APPEAL PROCEEDING IN THIS MATTER. IT ONLY PRESCRIBES THE MODE OF PAYMENT OF FRINGE BEN EFIT TAX TILL APPEAL IS DISPOSED OFF. SINCE THERE IS NO ORDER E ITHER OF JURISDICTIONAL HIGH COURT OR OTHER COURT, WHEREIN IT IS HELD THAT FRINGE BENEFIT TAX IS NOT PAYABLE IN RESPECT OF EXPENSES NOT INCURRED FOR THE PURPOSE OF EMPLOYEES BENEFIT, THEREFORE, I DO NOT FIND ANY LEGAL SUPPOR T FOR APPELLANT'S CONTENTION. IN VIEW OF THIS, THE ADDITI ON TO THE VALUE OF FRINGE BENEFIT MADE BY THE ASSESSING OFFICER IS CON FIRMED. 7. BEFORE US IT WAS SUBMITTED BY LEARNED COUNSEL OF THE ASSESSEE THAT THE ISSUE INVOLVED IN THESE APPEALS IS COVERED BY THE D ECISION OF THIS TRIBUNAL IN THE CASE OF ADANI RETAIL LTD VS. DCIT VIDE ITA NO. 3269/AHD/2010 DATED 25-10-2013 WHEREIN PLACING RELIANCE ON THE DECISION S OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DESAI BROTHERS IN ITA NO. 1 68/PN/2009, A.Y. 2006- 07 ORDER DATED 31-10-2012 AND BANGLORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. TOYOTA KRILOSKAR MOTOR P. LTD VS. ACIT IN ITA NO. 88/BANG/2011, A.Y. 2008-09 ORDER DATED 11-05-2011, IT WAS HELD T HAT PROVISIONS OF FRINGE BENEFIT TAX CANNOT BE INVOKED IN RESPECT OF EXPENSE S WHICH ARE NOT INCURRED ON EMPLOYEES OR THEIR FAMILY MEMBERS. HE THEREFORE PRAYED THAT FOLLOWING THE SAME THE APPEALS FILED BY THE ASSESSEES MAY BE ALLOWED. LD. DR RELIED ON THE ORDERS OF LOWER AUTHORITIES BUT DID NOT RELY ON ANY CONTRARY DECISION. WE THEREFORE FOLLOWING THE DECISION OF THIS TRIBUNA L IN THE CASE OF ADANI RETAIL LTD VS. DCIT (SUPRA) ALLOW THE APPEALS. RE LEVANT PORTION OF WHICH READS AS UNDER:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT T HE ASSESSEE HAS INCURRED SALES PROMOTION EXPENSES, PUBLICITY EXPENS ES, CONVEYANCE I.T.A NOS.3508 & 3509/AHD/2010 A.Y. 2006-07 PAGE NO ARVIND FASHIONS LTD VS. DCIT & ARVIND PRODUCTS LTD VS. DCIT 6 EXPENSES, TOURS AND TRAVELS EXPENSES, TELEPHONE AND OTHER ALLOWANCES, MOTOR CAR INCLUDED FOR THE PURPOSE OF FRINGE BENEFI T TAX AND SPECIFIC PERCENTAGE IS TREATED AS THE VALUE OF FRINGE BENEFI T INCLUDED RS. 1,11,61,364/- IN THE VALUE OF FRINGE BENEFIT FOR TH E PURPOSE OF FRINGE BENEFIT TAX, WHICH WAS CONFIRMED IN APPEAL TO THE L D. CIT(A). THE LD. A.R OF THE ASSESSEE HAS RELIED ON THE DECISIO N OF PUNE BENCH OF THE TRIBUNAL IN CASE OF DESAI BROTHERS LTD. VS. ADD ITIONAL CIT (SUPRA) AND BANGALORE BENCH OF THE TRIBUNAL IN CASE OF M/S. TOYOTA KRILOSKAR MOTOR PVT. LTD. VS. ACIT (SUPRA), WHEREIN IT WAS HE LD THAT PROVISIONS OF FRINGE BENEFIT TAX CANNOT BE INVOKED IN RESPECT OF EXPENSES WHICH ARE NOT INCURRED ON EMPLOYEES OR THEIR FAMILY MEMBE RS. IT HAS ALSO BEEN HELD BY THE TRIBUNAL IN CASE OF TOYOTA KRILOSK AR MOTOR PVT. LTD. VS. ACIT (SUPRA) THAT EXPENDITURE IN THE NATURE OF SALES PROMOTION, CONVEYANCE, TOURS AND TRAVELS AND GIFTS WHICH HAS N O ELEMENT OF EMPLOYEE'S BENEFIT AND WHICH IS LEGITIMATE BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE IN THE COURSE OF CARRYING ON ITS BUSINESS. THE SAME WAS NOT LIABLE TO FRINGE BENEFIT. WE FIND TH AT IN THE INSTANT CASE ALSO THE ASSESSEE HAS FILED DETAILS OF EXPENDI TURE BEFORE THE ASSESSING OFFICER WHICH HAVE ALSO BEEN FILED BEFORE US AT PAGES 6 TO 14 OF THE PAPER BOOK. FURTHER THE ASSESSING OFFICER HAS ALSO SUMMARIZED THIS EXPENDITURE IN THE ASSESSMENT ORDER AT PAGE NO.2 AND PARA NO.2 AS UNDER:- SR. NO. NATURE OF EXP. /PAYMENT AMOUNT PERCENTAGE % FRINGE BENEFIT VALUE 1 SALES PROMOTION & PUBLICITY ADVT & PUBLICITY 2548442 20% 509688 SALES PROMOTION 5 PUBLICITY 505991 20% 101198 DEFERRED REVENUE 4203990 20% 8407981 I.T.A NOS.3508 & 3509/AHD/2010 A.Y. 2006-07 PAGE NO ARVIND FASHIONS LTD VS. DCIT & ARVIND PRODUCTS LTD VS. DCIT 7 EXPENSES 5 2 CONVEYANCE, TOUR & TRAVEL (INCLUDING FOREIGN TRAVEL) AS PER THE BALANCE SHEET INCLUDING HOTEL CHARGES 4235784 20% 847157 3 MISC. REPAIRS & MAINT (VEHICLES) 139737 20% 27947 CAR DEPRECIATION 154449 20% 30890 4 OTHER ALLOWANCES 2729799 20% 545960 5 USE OF TELEPHONE ( INCLUDING MOBILE PHONE) MOBILE EXPENSE 1879074 20% 375815 TELEPHONE & TELEX EXPENSES A/C. 1573591 20% 314718 TOTAL 5580677 2 11161354 I.T.A NOS.3508 & 3509/AHD/2010 A.Y. 2006-07 PAGE NO ARVIND FASHIONS LTD VS. DCIT & ARVIND PRODUCTS LTD VS. DCIT 8 WE FIND THAT THE ASSESSING OFFICER HAS ESTIMATED FR INGE BENEFIT AMOUNT AT 20% OF THE EXPENDITURE AS OBSERVED FROM T HE ABOVE TABLE. HE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW T HAT THE ABOVE EXPENDITURE GAVE ANY BENEFIT TO THE EMPLOYEES OF TH E ASSESSEE COMPANY. IN ABSENCE OF ANY SUCH NEXUS BEING PROVED BY THE ASSESSING OFFICER, IN OUR CONSIDERED OPINION, LEVY OF FRINGE BENEFIT TAX ON THE ABOVE STATED EXPENDITURE IS NOT WARRANTE D. IN VIEW OF THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN CASE OF D ESAI BROTHERS LTD. VS. ADDITIONAL CIT (SUPRA) AND BANGALORE BENCH OF T HE TRIBUNAL IN CASE OF M/S. TOYOTA KRILOSKAR MOTOR PVT LTD. VS. AC IT (SUPRA), WE, THEREFORE, DELETE THE LEVY OF FRINGE BENEFIT TAX ON RS. 1,11,61,364/- AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (A.K. GARODIA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 13/12/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,