Gaurav Seksaria, Kolkata V. ITO, WD-3(4), KOLKATA, Kolkata

ITA 420/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0778 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE
• Assessee Lawyers: A K TIBREWAL
• Keywords: Gift
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & SHRI S.S. VISWANETHRA RAVI, JM] I.T.A NO. 420/KOL/201 6 ASSESSMENT YEAR : 2008-0 9 GAURAV SEKSARIA -VS- ITO, WARD-3(4), KO LKATA [PAN: AKFPS 4416 E] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI A.K. TIBREWAL , FCA FOR THE RESPONDENT : SHRI ARINDAM BHATTACHARJ EE, ADDL. CIT DATE OF HEARING : 09.11.2017 DATE OF PRONOUNCEMENT : 29.11.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-23, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO.130/CIT(A)- 23/WARD-3(4)/2014-15/KOL DATED 11.12.2015 AGAINST T HE ORDER PASSED BY THE ITO, WARD-3(4), KOLKATA [ IN SHORT THE LD AO] UNDER SECT ION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 24.12.2010 FOR THE ASSESSMENT YEAR 2008-09. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN CONFIRMING THE ADDITION OF RS 1,24,574/- BEING 1 0% OF OVERALL EXPENSES INCURRED BY THE ASSESSEE THROUGH CREDIT CARD ON BEHALF OF THE E MPLOYER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO.420/KOL/2016 GAURAV SEKSARIA A.YR.2008-09 2 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS AN INDIVIDUAL AND A WHOLETIME DIRECTOR OF M/S GOVIND STEEL CO. LTD AND IS MAINLY LOOKING AFTER THE MATTERS RELATING TO PRODUCTION, IMPORT OF RAW MATERIALS AND EXPORT SALE S OF FINISHED GOODS OF THE COMPANY . IN THIS PROCESS, HE HAD TO TRAVEL ABROAD FOR THE EX PORT BUSINESS OF THE COMPANY. THE COMPANY HAD AUTHORIZED THE ASSESSEE TO INCUR EXPEND ITURE FOR AND ON BEHALF OF THE COMPANY THROUGH CREDIT CARDS AND OTHERWISE. DURING THE PREVIOUS YEAR, THE ASSESSEE TRAVELLED TO DIFFERENT COUNTRIES LIKE USA, SOUTH AF RICA, GERMANY ETC WHERE M/S GOVIND STEEL CO. LTD EXPORTS HEAVILY. DURING THE VISITS T O THESE COUNTRIES, THE ASSESSEE INCURRED SEVERAL EXPENDITURES FOR THE PURPOSES OF THE BUSINE SS OF THE SAID COMPANY. DURING THESE VISITS, THE ASSESSEE ALSO PURCHASED SOME ELECTRONIC ITEMS LIKE MUSIC SYSTEMS ETC OF VERY INSIGNIFICANT AMOUNTS AND HAD GIFTED THE SAME TO FO REIGN BUYERS TO PROMOTE THE SALES OF THE SAID COMPANY. M/S GOVIND STEEL CO. LTD PAID AL L THESE AMOUNTS (BY WAY OF REIMBURSEMENT) DIRECTLY TO CREDIT CARD BANKERS. TH ESE ITEMS WERE NOT BROUGHT TO INDIA AS WOULD BE EVIDENT FROM THE ASSESSEES PASSPORT. HOWEVER, THE LD AO ALLEGED THAT THESE EXPENDITURES WERE OF PERSONAL NATURE AND REQU IRES TO BE ADDED AS PERQUISITE IN THE HANDS OF THE ASSESSEE EMPLOYEE AS THE EMPLOYER HAD MET THE PERSONAL OBLIGATION OF THE EMPLOYEE ASSESSEE AND ACCORDINGLY ADDED 50% OF THE TOTAL EXPENDITURE ON ESTIMATE BASIS. THE DISALLOWANCE MADE BY THE LD AO IN THIS REGARD WAS RS 6,70,436/-. 4. THE ASSESSEE FILED A DETAILED WRITTEN SUBMISSION S BEFORE THE LD CITA AND SUBMITTED THE DETAILS RELATING TO THE CREDIT CARD EXPENSES AS UNDER:- 3 ITA NO.420/KOL/2016 GAURAV SEKSARIA A.YR.2008-09 3 5. THE LD CITA ON GOING THROUGH THE SUBMISSIONS OF THE ASSESSEE RESTRICTED THE ADDITION TO 10% OF EXPENSES AS AGAINST 50% MADE BY THE LD AO , BY OBSERVING AS UNDER:- DECISION 1. I HAVE EXAMINED THE ASSESSMENT ORDER OF THE AO, AND THE MATTERS AGITATED IN APPEAL. IN EFFECT THERE IS ONLY ONE MATTER TO ADJUDICATE, B EING THAT WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO WAS CORRECT IN HO LDING THAT THE EXPENDITURES/PAYMENTS MADE THROUGH THE CREDIT CARD BY THE EMPLOYEE ON BEHALF OF THE EMPLOYER WERE OF PERSONAL NATURE AND WHETHER TH E EMPLOYER-COMPANY HAD MET THE ASSESSEES OBLIGATION REQUIRING CERTAIN PAYMENT S TO BE MADE, AND THEREFORE, THE SAME WAS TAXABLE AS PERQUISITES IN THE HANDS OF THE ASSESSEE-APPELLANT. 2. THE AO HAS OBSERVED THAT THE PAYMENTS WERE MADE BY THE COMPANY ON BEHALF OF THE APPELLANT, AND THIS IS NOT A MATTER OF DISPUTE. THE AO HAS ALSO NOT QUESTIONED THE SOURCES OF THE FUND, AND THE ASSESSEES EXPLANATION THAT THE SOURCES WERE FROM THE COMPANY M/S GOVIND STEEL CO. LTD. HAS ALSO NOT BEEN DISPUTED. THE AO HAS NOTICED THAT THE ASSESSEE HAD PAID BILLS WORTH RS. 13,40,81 7/- FROM THE CREDIT CARD AND HAS, ON THE BASIS OF THE NATURE OF BILLS MADE A DISALLOW ANCE OF 50%. 3. IT IS ALSO SEEN THAT THERE AO HAS TREATED 50% OF TH E EXPENSES AS PERSONAL IN NATURE. THIS HAS BEEN DONE IN AN AD HOC FASHION, AND THE RA TIONALE LEADING TO THIS CERTAIN PERCENTAGE DOES NOT EMANATE FROM THE FINDINGS OF TH E ORDER OF THE AO. 4. IT HAS BEEN PLEADED DURING THE COURSE OF THE APPELL ATE PROCEEDINGS THAT THE COMPANY IN WHICH THE ASSESSEE-INDIVIDUAL IS THE FUL L-TIME DIRECTOR HAS PAID THE NECESSARY FBT FOR THE ASSESSMENT YEAR 2008-09, AND THEREFORE THE SAME OUGHT NOT TO BE TREATED AS PERQUISITES IN THE HANDS OF THE AP PELLANT. ACCORDINGLY, THE FBT RETURN OF THE COMPANY WAS ALSO SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS. FROM THE SAME THE FOLLOWING POINTS REL ATING TO FBT PAYMENTS EMANATE. NATURE OF EXPENDITURE AMOUNT/VALUE OF EXPENDITURE(RS) PERCENTAGE (%) VALUE OF FB (RS.) SAL ES PROMOTION 1,75,782 20 35,156 EMPLOYEES WELFARE 1,47,435 20 29,487 CONVEYANCE IN THE BUSINESS 1,58,272 20 31,654 REPAIR, MAINTENANCE OF MOTOR CAR 4,63,122 20 92,624 USE OF TELEPHONES INCLUDING MOBILES 3,82,030 20 76,406 TOUR AND TRAVEL INCLUDING 26,44,787 5 1,32,239 4 ITA NO.420/KOL/2016 GAURAV SEKSARIA A.YR.2008-09 4 FOREIGN TRAVEL TOTAL 3,97,566 5. IT HAS ALSO BEEN CONTENDED DURING APPEAL THAT THE EXPENDITURE ON ELECTRONICS ITEMS AND CLOTHS WERE NEGLIGIBLE AND WERE INCURRED OVERSE AS FOR THE PURPOSES OF GIFTING TO CUSTOMERS/CLIENTS OF M/S GOVIND STEEL CO. LTD. THE APPELLANT HAS, IN HIS FAVOUR CITED THE CASES OF MI5 OIL & NATURAL GAS CORPORATION LTD VS ASSISTANT COMMISSIONER OF INCOME TAX (DS)- ITAT ( AHD) [20~3] 34 TAXMANN.COM 172 (AHMADABAD BENCH) AND THE JUDICIAL CITATION IN SHRI BIPIN KOTAK VS AC IT, CENTRAL CIRCLE, MUMBAI IN ITA NO 4866/MUM/2009 [A.Y 2006-07] IN THE ITAT, MUM BAI BENCH, 'H', MUMBAI, DATE OF ORDER BEING 29TH JULY, 2011. IN THE SAID SE COND CASE I JUDGMENT THERE ARE SIMILAR SETS OF FACTS AND CIRCUMSTANCES WHEREIN AS PARA NO. 5 THE HON'BLE ITAT HAS OBSERVED AS UNDER: 05. 'WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. TH'E LEARNED COUNSEL F OR THE ASSESSEE HAS TAKEN US THROUGH THE CBOT CIRCULAR NO. 8/2005 DATED 29.08.20 05 GIVING EXPLANATORY NOTES ON THE PROVISIONS RELATING TO FRINGE BENEFIT TAX AS INTRODUCED BY THE FINANCE ACT, 2005 AND INVITED OUR ATTENTION TO THE RELEVANT PORTION THEREOF TO. EXPLAIN THE OBJECT BEHIND LEVYING FRINGE BENEFIT TA X. AS INDICATED IN THE SAID CIRCULAR, THE FRINGE BENEFIT TAX HAS BEEN INTRODUCE D AS A SURROGATE TAX ON' EMPLOYER WITH THE OBJECTS OF RESOLVING THE PROBLEMS IN, TAXING SOME PERQUISITES/FRINGE BENEFITS IN THE HANDS OF THE EMP LOYEES IN TERMS OF SECTION 17. FURTHER, AS EXPLAINED IN PARA NO. 3.2 OF THE CIRCUL AR, THE SCOPE OF THE TERM 'FRINQE BENEFITS PROVIDED' IS DEFINED IN SECTION 11 5WB(1) TO MEAN ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PRIVILEGE, SERVICE FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE, TO HIS EMPLOYEES. MOREO VER, AS CLARIFIED IN THE SAID CIRCULAR WHILE ANSWERING FREQUENTLY ASKED QUESTION NO. 15, FRINGE BENEFIT IS DEEMED TO HAVE BEEN PROVIDED IF THE EMPLOYER HAS I NCURRED EXPENSES FOR ANY OF THE PURPOSE REFERRED TO IN THE RELEVANT PROVISIONS AND THERE IS NO REQUIREMENT TO SEGREGATE SUCH EXPENSES BETWEEN THOSE INCURRED FOR OFFICIAL PURPOSES AND PERSONAL PURPOSES. IT WAS FURTHER CLARIFIED WHILE A NSWERING QUESTION NO. 81 THAT WHEN EXPENDITURE ON RUNNING AND MAINTENANCE OF MOT OR CARS IS LIABLE TO FRINGE BENEFIT TAX, THE. EMPLOYEES WILL NOT BE LIABLE TO I NCOME TAX ON THE PERQUISITE VALUE OF MOTOR CAR PROVIDED BY THE EMPLOYER. AS RIG HTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, CIRCULAR NO. 8/20 05 DATED 29. 08.2005 ISSUED BY THE BOARD EXPLAINING THE PROVISIONS RELATING TO FRINGE BENEFIT TAX THUS MAKES IT CLEAR THAT ALTHOUGH FRINGE BENEFIT TAX IS RECOVE RED FROM EMPLOYER, THE SAME ACTUALLY IS THE LEVY ON EMPLOYEES FOR ANY PRIVILEGE , SERVICE, FACILITY OR AMENITY DIRECTLY OR INDIRECTLY PROVIDED BY THE EMPLOYER WHE THER BY WAY OF REIMBURSEMENT OR OTHERWISE. AS FURTHER CLARIFIED IN THE CIRCULAR, FRINGE BENEFIT TAX IS LEVIED ON THE EXPENSES INCURRED BY THE EMPLO YER IRRESPECTIVE OF WHETHER THE SAME ARE INCURRED FOR OFFICIAL OR PERSONAL PURP OSES. IT HAS ALSO BEEN 5 ITA NO.420/KOL/2016 GAURAV SEKSARIA A.YR.2008-09 5 CLARIFIED THAT WHATEVER PERQUISITES ARE LIABLE TO F RINGE BENEFIT TAX, THE. EMPLOYEES WILL NOT BE LIABLE TO INCOME-TAX ON THE VALUE OF TH E SAID PERQUISITES. ' 6. IN VIEW OF THE ABOVE I FIND STRENGTH IN THE ARGUME NT OF THE APPELLANT THAT HE OUGHT NOT TO BE TAXED AS THE FBT HAS BEEN PAID BY THE EM PLOYER-COMPANY. HOWEVER, IT IS SEEN THAT ONLY SOME OF THE ITEMS ARE COVERED BY THE ELEMENT OF FBT AS BORNE BY THE COMPANY, NOTABLY THE ITEMS OF TELEPHONES, FOREIGN T OUR AND SALES PROMOTIONS. AS PER THE BREAKUP RENDERED BY THE APPELLANT, THE TOTA L PAYMENTS DURING THE YEAR UNDER CONSIDERATION OUGHT TO BE LESS BY RS. 1,25,744/- AS THIS AMOUNT RELATE TO EXPENSES INCURRED DURING THE F.Y. 2006-07, AND THEREFORE THE Y ARE BEYOND THE PURVIEW OF THE A.Y. 2008-09 UNDER CONSIDERATION. THEREFORE, THE AM OUNT IN QUESTION GETS REDUCED BY THAT EXTENT, AND STANDS AT RS. 12,45,744/- (RS. 13,70,886 LESS RS. 1,25,744). ON FURTHER ANALYSIS FOR THE PAYMENTS MADE THROUGH THE CREDIT CARD, RELEVANT FOR THE A.Y. 2008-09, IT IS SEEN THAT THE FBT PAYMENTS BY THE CO MPANY COVERS SALES PROMOTION, FOREIGN TRAVEL AND USE OF THE TELEPHONE BILLS INCLU DING MOBILE BILLS, BUT DOES NOT COVER THE HOTEL AND RESTAURANT EXPENSES AND GIFTS T O CUSTOMERS, WHICH ARE PARTLY OF A DIRECT AND PERSONAL NATURE. 7. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT IT W OULD MEET THE ENDS OF JUSTICE IF THE DISALLOWANCE IS RESTRICTED TO 10% OF THE OVERALL EX PENSES OR 10% OF RS. 12,45,744/- OR RS. 1,24,574/-. THIS, IN MY OPINION WOULD COVER ALL ITEMS OF EXPENSES WHETHER COVERED BY THE FBT PAYMENTS BY THE EMPLOYER COMPANY OR OTHERWISE. IN SUMMARY, THE ADDITION TO THE EXTENT OF RS. 1,24, 574/- IS SUSTAINED, AND THE BALANCE IS DELETED. THE APPELLANT GETS RELIEF ACCO RDINGLY. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUNDS:- 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-23, KOLKATA, ERRED IN ARBITRAR Y CONFIRMING THE ADDITION OF RS. 1,24,574 BEING 10% OF THE OVERALL EXPENSES INCU RRED BY THE ASSESSEE THROUGH CREDIT CARD ON BEHALF OF ITS EMPLOYER. 2. THAT THE APPELLANT CRAVES LEAVE TO TAKE ADDITION AL GROUNDS, AND /OR TO AMEND OR WITHDRAW ANY OF THE FOREGOING GROUNDS BEFORE, OR AT THE TIME OF HEARING OF THIS APPEAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE LD AR ARGUED THAT THE ENTIRE EXPENDITURE INCURRED THROUGH CREDIT CARDS BY THE AS SESSEE FOR AND ON BEHALF OF THE COMPANY HAS BEEN FURNISHED BEFORE THE LD CITA TO TH E TUNE OF RS 13,70,886/- WHICH IS 6 ITA NO.420/KOL/2016 GAURAV SEKSARIA A.YR.2008-09 6 INCLUDED IN THE FBT RETURN UNDER THE HEAD TOUR AND TRAVEL INCLUDING FOREIGN TRAVEL OF RS 26,44,787/-. ACCORDINGLY IT WAS ARGUED THAT THE EXPENDITURE INCURRED THROUGH CREDIT CARD HAVE DULY BEEN INCLUDED IN THE FBT RETURN FILE D BY THE COMPANY I.E GOVIND STEEL CO. LTD . ONCE AN EXPENDITURE IS INCLUDED IN THE F BT RETURN, THE LD AR BY PLACING RELIANCE ON THE CBDT CIRCULAR NO. 8/2005 DATED 29.8 .2005 ARGUED THAT THE SAME CANNOT BE TREATED AS PERQUISITE IN THE HANDS OF THE EMPLOY EE. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHOR ITIES. WE FIND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE EMPLOYEE IN HIS CREDIT CAR D DURING FOREIGN TRAVEL VISITS , FOR AND ON BEHALF OF THE COMPANY M/S GOVIND STEEL CO. LTD , IS NOT DISPUTED BY THE REVENUE. IN FACT THERE IS A SPECIFIC FINDING IN THIS REGARD IN THE ORDER OF THE LD CITA AS STATED SUPRA. IT IS NOT IN DISPUTE THAT THE ASSESSEE EMPLOYEE HAD NOT CLAIMED ANY EXPENDITURE AS DEDUCTION WHICH WERE INCURRED BY HIM THROUGH CREDIT CARD DURING HIS FOREIGN TRAVEL. HE INCURRED EXPENSES THROUGH CREDIT CARDS AND THE SAME WERE REIMBURSED TO HIM BY THE COMPANY M/S GOVIND STEEL CO. LTD. MOREOVER, THE SA ID EXPENSES WERE INCLUDED IN THE FBT RETURN AND HENCE BY PLACING RELIANCE ON THE CIR CULAR NO. 8/2005 DATED 29.8.2005, THERE CANNOT BE ANY ELEMENT OF PERQUISITE TO BE TAX ED IN THE HANDS OF THE ASSESSEE EMPLOYEE. IN ANY CASE, IF AT ALL, THERE IS NO DOUB T IN THE MIND OF THE REVENUE WITH REGARD TO THE SUBJECT MENTIONED EXPENSES, THE REVENUE COUL D EXAMINE THE SAME ONLY IN THE HANDS OF THE COMPANY M/S GOVIND STEEL CO. LTD AND N OT IN THE HANDS OF THE ASSESSEE EMPLOYEE. WE FIND THAT BOTH THE AUTHORITIES BELOW HAD GROSSLY ERRED IN MAKING SOME ADDITION TOWARDS THE SAME ON AN ESTIMATED BASIS. H ENCE WE HAVE NO HESITATION IN DIRECTING THE LD AO TO DELETE THE ENTIRE ADDITION M ADE IN THIS REGARD. ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 7 ITA NO.420/KOL/2016 GAURAV SEKSARIA A.YR.2008-09 7 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 29.11.2017 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BALAGA NESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 29.11.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. GAURAV SEKSARIA, 219, CHITTARANJAN AVENUE, GIRIS H PARK, KOLKATA-700013 2. ITO, WARD-3(4), KOLKATA, AAYAKAR BHAWAN, P-7, CH OWRINGHEE SQUARE, KOLKATA-700069. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S