BIPIN P. KOTAK, MUMBAI V. ACIT CEN CIR 29, MUMBAI

ITA 4866/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49666 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUBAL
• Keywords: Gift
• Section: 143(3); 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI R.S. PADVEKAR, JUDICIAL MEMBER. I.T.A. NO. 4866/MUM/2009 ASSESSMENT YEAR : 2006-07. MR. BIPIN KOTAK, ASSTT. COMMISSIONER OF C/O 93/95, SUGAR HOUSE, VS. INCOME TAX, GR. FLOOR, KAZI SYED STREET, CENTRAL CIRCLE-29, MASJID BUNDER, MUMBAI. MUMBAI 400 003. PAN AGVPK 4508Q APPELLANT. RESPONDENT. APPELLANT BY : SHRI VIJAY MEHTA. RESPONDENT BY : SHRI M.R. KUBAL. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS), CENTRAL CIRCLE-V, MUMBAI DATED 14-07- 2009 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE ADDITION OF RS.13,65,035/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) TO THE TO TAL INCOME OF THE ASSESSEE ON ACCOUNT OF PERQUISITES U/S 15 READ WITH SECTION 17( 2)(IV) OF THE ACT. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS A PROPRIETOR OF M/S PRASAD SHIPPING CO. AND IS ALSO A DIRECTOR IN SRI R ADHAKRISHNA SHIPPING PVT. LTD. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY HIM ON 30-10- 2006 DECLARING A TOTAL INCOME OF RS.5,24,420/-. DUR ING THE COURSE OF ASSESSMENT 2 ITA NO.4866/MUM/2009 ASSESSMENT YEAR : 2006-07. PROCEEDINGS, IT WAS NOTICED BY THE AO FROM THE DETA ILS AND DOCUMENTS FURNISHED BY THE ASSESSEE THAT EXPENSES AGGREGATING TO RS.14,44, 354/- INCURRED BY THE ASSESSEE THROUGH HIS CREDIT CARDS WERE PAID BY M/S SRI RADHA KRISHNA SHIPPING PVT. LTD. HE, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN AS TO W HY THE SAID AMOUNT PAID BY THE COMPANY SHOULD NOT BE TREATED AS PERQUISITE U/S 17. IN REPLY, THE ASSESSEE SUBMITTED THAT HE WAS A MANAGING DIRECTOR OF M/S SRI RADHAKR ISHNA SHIPPING PVT. LTD. AND IN THE SAID CAPACITY, HE HAD INCURRED VARIOUS EXPEN SES LIKE PURCHASE OF AIR TICKETS, LODGING AND BOARDING EXPENSES, PURCHASE OF ARTICLES FOR GIVING GIFTS TO THE CLIENTS ON BEHALF OF THE COMPANY. HE SUBMITTED THAT THE SAI D EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS O F THE COMPANY AND THE SAME WERE APPROVED BY THE BOARD VIDE A RESOLUTION PASSE D ON 04-03-1998. ACCORDING TO THE AO, THE ASSESSEE, HOWEVER, COULD NOT FURNISH TH E REQUIRED EVIDENCE TO ESTABLISH THAT THE EXPENSES INCURRED THROUGH CREDIT CARDS WER E WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE EMPLOYER COMPANY. HE ALSO FOUND THAT MOST OF THE SAID EXPENSES GOING BY THEIR VERY NATURE WERE PERSO NAL EXPENSES OF THE ASSESSEE WHICH WERE PAID BY HIS EMPLOYER COMPANY. HE NOTED T HAT AS PER THE PROVISIONS OF SECTION 17(2)(IV), ANY SUM PAID BY THE EMPLOYER IN RESPECT OF ANY OBLIGATION WHICH, BUT FOR SUCH PAYMENT, WOULD HAVE BEEN PAYABLE BY TH E ASSESSEE WAS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE AS PERQUISITE. A CCORDINGLY, RELYING ON THE SAID PROVISIONS, HE ADDED THE AMOUNT OF RS.14,44,354/- T O THE TOTAL INCOME OF THE ASSESSEE AS VALUE OF PERQUISITE IN THE ASSESSMENT C OMPLETED U/S 143(3) VIDE AN ORDER DATED 24-12-2008. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AND TH E SUBMISSION MADE BEFORE THE AO WAS REITERATED ON HIS BEHALF BEFORE THE LEARNED CIT(APPEALS). IT WAS ALSO SUBMITTED THAT THE ADDITION MADE BY THE AO ON ACCOU NT OF PERQUISITE VALUE WOULD 3 ITA NO.4866/MUM/2009 ASSESSMENT YEAR : 2006-07. AMOUNT TO DOUBLE TAXATION AS THE EXPENSES IN QUESTI ON WERE COVERED BY FRINGE BENEFIT TAX AND THE EMPLOYER COMPANY HAD PAID FRING E BENEFIT TAX ON THE EXPENSES INCURRED BY THE ASSESSEE THROUGH HIS CREDIT CARDS A ND PAID FOR BY THE SAID COMPANY. 4. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN T HE SUBMISSION MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND REJECTING THE SAME, HE CONFIRMED THE ADDITION OF RS.14,44,354/- MADE BY THE AO ON ACCOU NT OF VALUE OF PERQUISITE TO THE TOTAL INCOME OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 4.3 OF HIS IMPUGNED ORDER : I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SU BMISSIONS OF THE APPELLANT. LOOKING INTO THE NATURE OF THE EXPENSES AND ATTENDING FACTS AND CIRCUMSTANCES, I FIND THE ADDITION AS JUSTIFIED. TO THIS END, IN THE FIRST PLACE, I FIND THE ITEMS OF THE EXPENDITURE MOSTLY PERSONAL IN NATURE. AS MAY BE NOTED, THE ITEMS PURCHASED INCLUDED GARMENTS, SHOE S, ACCESSORIES / JEWELLERIES, PERFUMES AND EXPENSES ON HAIR CUT AND BEAUTY PARLOR FACILITIES. AS I FIND, IT IS NOT THE USUAL TREND IN BUSINESS TO PRESENT THESE ITEMS AS GIFTS AND COMPLIMENTS. SHOES, DRESSES, ACCESSORIES AND LI KE ITEMS ARE NORMALLY VERY PERSONAL ITEMS WHICH ARE SELDOM GIFTED IN THE BUSINESS WORLD, PARTICULARLY IN THE TYPE OF CLIENTELE THE APPELLANT DEALS WITH. FURTHER, EXPENSES ON HAIR CUT AND AVAILING OF BEAUTY PARLOR FACILITIES ARE PURELY PERSONAL EXPENSES. IN THIS BACKDROP, MOST SIGNIFICA NTLY, I FIND THAT THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE ANY EVIDENCE TO JUSTIFY THE BUSINESS NEED OF THESE EXPENSES FROM THE POINT OF VIEW OF TH E EMPLOYER COMPANY. AS PER THE SETTLED POSITION OF LAW, THE BURDEN OF PROV ING THE BUSINESS PURPOSE OF THE EXPENSES WAS WITH THE APPELLANT, WHICH HE FAILE D TO DISCHARGE. THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASES CIT VS. CALCUTTA AGENCY 19 ITR 191 AND CIT VS. IMPERIAL CHEMICALS AN D INDUSTRIES PVT. LTD. 74 ITR 17 AND OF THE HONBLE RAJASTHAN HIGH COURT I N THE CASE OF CIT VS. UDAYPUR MINERALS DEVELOPMENT PVT. LT. 269 ITR 263 B EAR SPECIAL MENTION IN THIS REGARD. ON THIS, THE APPELLANT HAS ARGUED T HAT THE BILLS BEING COMPUTER GENERATED COULD NOT BE PRESERVED FOR LONG TO BE PRO DUCED AS EVIDENCE. THE ARGUMENT IS HOLLOW AS THE PAPERS ON WHICH COMPUTER GENERATED BILLS ARE PREPARED ARE EQUALLY DURABLE AS BILLS OTHERWISE PRE PARED. THERE IS THEREFORE, NO REASON WHY THEY COULD NOT BE PRESERVED. THIS APA RT, I ALSO FAIL TO SEE ANY REASON WHY THE APPELLANT WOULD BE MADE TO PURCHASE THESE ITEMS THROUGH HIS 4 ITA NO.4866/MUM/2009 ASSESSMENT YEAR : 2006-07. CREDIT CARDS WHEN THE COMPANY COULD HAVE EASILY BOU GHT THE ITEMS OUT OF ITS OWN FUNDS EITHER IN CASH OR THROUGH CHEQUE. AS IS W ELL KNOWN, COMPANIES BUY GIFT ARTICLES IN BULK AND NOT IN PIECEMEAL FASH ION AS HAS BEEN DONE BY THE APPELLANT. I ALSO FIND IT UNLIKELY THAT A SENIOR E XECUTIVE OF THE RANK OF THE MANAGING DIRECTOR, THE APPELLANTS POSITION IN THE COMPANY, WOULD BE REQUIRED TO BUY GIFT ARTICLES. THE FOREGOING FACTS AND CIRCUMSTANCES COMBINE TO LEAD ME TO AGREE WITH THE ASSESSING OFFICER THAT THE EXPENSES WERE NOT FOR THE BUSINESS OF THE EMPLOYER COMPANY. TO THIS END, I ALSO FIND THAT THE RESOLUTION DT. 4.3.1998 PASSED BY THE EMPLOYER COMP ANY ONLY AUTHORIZES THE APPELLANT TO INCUR EXPENSES IN THE NORMAL COURSE OF DAY TO DAY BUSINESS OF THE COMPANY ON ITEMS LIKE BUSINESS PROMOTION, TRAVE LING INCLUDING LODGING AND BOARDING, AIR FARE, CONVEYANCE AND TRAVELING EX PENSES, FUEL EXPENSES ETC. THE KIND OF EXPENSES INCURRED THROUGH THE CREDIT CA RDS DO NOT FEATURE IN THE RESOLUTION SIGNIFYING THEREBY THAT THESE EXPENSES A RE NOT FOR THE DAY TO DAY BUSINESS OF THE APPELLANT. THE APPELLANTS ARGUMENT THAT THE ADDITION WOULD AMOUNT TO DOUBLE TAXATION AS THE COMPANY HAS PAID F RINGE BENEFIT TAX ON THE EXPENSES IS HIGHLY INCONSISTENT. THE FRINGE BEN EFIT TAX IS GOVERNED BY COMPLETELY DIFFERENT PARAMETERS AND FURTHER, THE FA CT THAT THE COMPANY HAD PAID FRINGE BENEFIT TAX WOULD ONLY ENDORSE THE FACT THAT THE EXPENSES ARE NOT FOR DAY TO DAY BUSINESS OF THE COMPANY. BESIDES THE APPELLANT HAS ALSO NOT GIVEN THE SPECIFICS OF THE ITEMS ON WHICH FRING E BENEFIT TAX HAS BEEN PAID BY THE COMPANY. I ALSO FIND THAT IN APPELLANT S OWN CASE, MY PREDECESSOR HAD THE OCCASION TO SUBSTANTIALLY CONFI RM THE ADDITIONS MADE ON SIMILAR GROUND FOR THE ASSESSMENT YEARS 2001-02 TO 2005-06 VIDE HIS ORDER DT. 22.5.2007. FACTS REMAINING THE SAME, I AGREE WI TH MY PREDECESSOR ON HIS REASONING CONFIRMING THE ADDITIONS. IN THE LIGHT OF THE FOREGOING, I FIND THAT THE EXPENSES IN QUESTION HAVE BEEN RIGHTLY TREATED AS PERQUISITES IN THE HANDS OF THE APPELLANT U/S 17(2)(IV) OF THE ITA. AS MAY B E SEEN, THE EXPENSES INCURRED DO SATISFY THE CONDITIONS STIPULATED IN TH E CLAUSE (IV) OF SUB SECTION 2 OF SECTION 17. ACCORDINGLY, THE ADDITION IS CONFI RMED AND THE GROUND OF APPEAL IS DISMISSED. THE ASSESSING OFFICER IS AT TH E SAME TIME DIRECTED TO VERIFY THE APPELLANTS CONTENTIONS ON THE DOUBLE AD DITIONS AND ON RS.51,510/- BEING RELATABLE TO ASSESSMENT YEAR 2005-06 AND MODI FY THE DISALLOWANCE IF ON VERIFICATION, THE APPELLANTS CONTENTIONS ARE FO UND TO BE CORRECT. THE ASSESSING OFFICER IS ALSO DIRECTED TO TAKE RS.14,44 ,555/- AS THE BASIS OF ADDITION INSTEAD OF RS.14,44,354/-. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5 ITA NO.4866/MUM/2009 ASSESSMENT YEAR : 2006-07. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS TAKEN US THROUGH THE CBDT CIRCULAR NO. 8/2005 DATED 29-08-2005 GIVING EX PLANATORY NOTES ON THE PROVISIONS RELATING TO FRINGE BENEFIT TAX AS INTROD UCED BY THE FINANCE ACT, 2005 AND INVITED OUR ATTENTION TO THE RELEVANT PORTION THERE OF TO EXPLAIN THE OBJECT BEHIND LEVYING FRINGE BENEFIT TAX. AS INDICATED IN THE SAI D CIRCULAR, THE FRINGE BENEFIT TAX HAS BEEN INTRODUCED AS A SURROGATE TAX ON EMPLOYER WITH THE OBJECTS OF RESOLVING THE PROBLEMS IN TAXING SOME PERQUISITES/FRINGE BENE FITS IN THE HANDS OF THE EMPLOYEES IN TERMS OF SECTION 17. FURTHER, AS EXPLA INED IN PARA NO. 3.2 OF THE CIRCULAR, THE SCOPE OF THE TERM FRINGE BENEFITS PR OVIDED IS DEFINED IN SECTION 115WB(1) TO MEAN ANY CONSIDERATION FOR EMPLOYMENT P ROVIDED BY WAY OF ANY PRIVILEGE, SERVICE FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERW ISE, TO HIS EMPLOYEES. MOREOVER, AS CLARIFIED IN THE SAID CIRCULAR WHILE A NSWERING FREQUENTLY ASKED QUESTION NO. 15, FRINGE BENEFIT IS DEEMED TO HAVE B EEN PROVIDED IF THE EMPLOYER HAS INCURRED EXPENSES FOR ANY OF THE PURPOSES REFER RED TO IN THE RELEVANT PROVISIONS AND THERE IS NO REQUIREMENT TO SEGRAGATE SUCH EXPEN SES BETWEEN THOSE INCURRED FOR OFFICIAL PURPOSES AND PERSONAL PURPOSES. IT WAS FUR THER CLARIFIED WHILE ANSWERING QUESTION NO. 81 THAT WHEN EXPENDITURE ON RUNNING AN D MAINTENANCE OF MOTOR CARS IS LIABLE TO FRINGE BENEFIT TAX, THE EMPLOYEES WILL NOT BE LIABLE TO INCOME TAX ON THE PERQUISITE VALUE OF MOTOR CAR PROVIDED BY THE EMPLO YER. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, CIRCULAR NO. 8/2005 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 RECOVERED FROM EMPLOYER, THE SAME ACTUALLY IS THE LEVY ON EMPLOYEES FOR ANY PRIVILEGE, SERVICE , FACILITY OR AMENITY DIRECTLY OR INDIRECTLY PROVIDED BY THE EMPLOYER WHETHER BY WAY OF REIMBURSEMENT OR 6 ITA NO.4866/MUM/2009 ASSESSMENT YEAR : 2006-07. OTHERWISE. AS FURTHER CLARIFIED IN THE CIRCULAR, FR INGE BENEFIT TAX IS LEVIED ON THE EXPENSES INCURRED BY THE EMPLOYER IRRESPECTIVE OF W HETHER THE SAME ARE INCURRED FOR OFFICIAL OR PERSONAL PURPOSES. IT HAS ALSO BEEN CLARIFIED THAT WHATEVER PERQUISITES ARE LIABLE TO FRINGE BENEFIT TAX, THE E MPLOYEES WILL NOT BE LIABLE TO INCOME-TAX ON THE VALUE OF THE SAID PERQUISITES. AS A MATTER OF FACT, EVEN THE AO HAS ACCEPTED THIS POSITION IN THE ASSESSMENTS MADE U/S 143(3) IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 AND 2008-09 WHERE IN HE HAS DEALT THE SIMILAR ISSUE AS UNDER : ASSTT.YEAR : 2007-08. I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE. I T IS NOTICED THAT M/S SRI RADHAKISHAN SHIPPING PVT. LTD., THE EMPLOYER OF THE ASSESSEE HAS ALREADY CONSIDERED THE AGGREGATE AMOUNT OF RS.5,63,923/- WH ILE OFFERING THE VALUE OF FBT AND HAS PAID TAX OF RS.37,963/- ON RS.1,12,785/ - BEING 20% OF RS.5,63,923/-. SINCE THE EMPLOYER OF THE ASSESSEE H AS ALREADY PAID TAX OF RS.37,963/- ON RS.1,12,785/- UNDER THE FRINGE BENEF IT TAX, THE BALANCE AMOUNT OF RS.4,51,138/- (563923-112786) IS TREATED AS PERQUISITE IN THE HANDS OF THE ASSESSEE WITHIN THE MEANING OF SECTION 17(2) OF THE I.T. ACT, 1961 AND THE SAME IS ADDED TO THE INCOME OF THE ASS ESSEE. ASSTT.YEAR : 2008-09: I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE A ND IT IS NOTICED THAT M/S RADHAKISHAN SHIPPING PVT. LTD., THE EMPLOYER OF THE ASSESSEE HAS ALREADY CONSIDERED THE AGGREGATE AMOUNT OF RS.1,72, 650/- WHILE OFFERING THE VALUE OF FBT AND HAS PAID TAX OF RS.11,737/- ON RS. 34,530/- UNDER THE FRINGE BENEFIT TAX. THE BALANCE AMOUNT OF RS.1,38,1 20/- (1,72,650 34,530) IS TREATED AS PERQUISITE IN THE HANDS OF TH E ASSESSEE WITHIN THE MEANING OF SECTION 17(2) OF THE I.T. ACT, 1961 AND THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE. 6. KEEPING IN VIEW THE BOARD CIRCULAR NO. 8/2005 DA TED 29-08-2005 AS DISCUSSED ABOVE AND THE STAND TAKEN BY THE AO HIMSE LF ON THE SIMILAR ISSUE IN ASSESSEES OWN CASE FOR THE SUBSEQUENT YEARS I.E. A SSESSMENT YEARS 2007-08 AND 2008-09, WE HOLD THAT THE EXPENSES IN QUESTION INCU RRED BY THE ASSESSEE AND 7 ITA NO.4866/MUM/2009 ASSESSMENT YEAR : 2006-07. REIMBURSED BY HIS EMPLOYER COMPANY CANNOT BE ADDED TO HIS TOTAL INCOME AS PERQUISITE TO THE EXTENT TO WHICH FRINGE BENEFIT TA X THEREON WAS PAID BY THE EMPLOYER AND ONLY THE BALANCE AMOUNT ON WHICH NO FR INGE BENEFIT TAX HAS BEEN PAID BY THE EMPLOYER COMPANY CAN BE ADDED TO THE T OTAL INCOME OF THE ASSESSEE AS PERQUISITE. THE IMPUGNED ORDER OF THE LEARNED CIT(A PPEALS) ON THIS ISSUE IS, THEREFORE, SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO FOR RECOMPUTING THE VALUE OF PERQUISITE, IF ANY, TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AFTER VERIFYING THE AMOUNT OF FRINGE BENEFIT TAX PAID BY THE EMPLOYER. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY, 2011. SD/- SD/- (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED : 29 TH JULY, 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. (TRUE COPY ) BY ORDER ASS ISTANT REGISTRAR, ITAT, MUMBAI BEN CHES, MUMBA I.