PHARMED LTD, MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 6568/MUM/2011

• Counselvise Citation: 656819914 RSA 2011
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 29-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY MEHTA IZRFKHZ DH LS

Judgement Text

M/S PHARMED LIMITED - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH VKJ- DS- XQIRK] U;KF;D LNL; ,OA JH JKTSUNZ FLAG YS[KK LNL; DS LE{K BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI RAJ ENDRA SINGH ACCOUNTANT MEMBER VK;DJ VIHY LA[;K /ITA NO.6568/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 M/S PHARMED LIMITED 141, PHARMED HOUSE, WALCHAND HIRACHAND MARG, MUMBAI 400 001. CUKE@ VS. DCIT (OSD) CIR -2(2) MUMBAI. PAN:- AAACP2191A VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI VIJAY MEHTA IZR;FKHZ DH VKSJ LS @ RESPONDENT BY MS. TRIPURA SUNDARI VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.7.2011 OF CIT(A) FOR THE ASSESSMENT YEARS 2008-0 9. THE DISPUTES RAISED IN THIS APPEAL RELATE TO LEGAL VALIDITY OF REOPENIN G OF THE ASSESSMENT AND RATE OF LEVY OF FRINGE BENEFIT TAX (FBT). 2. THE FACTS IN BRIEF ARE THAT THE AO DURING THE AS SESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD OFFERED A SUM OF RS 90, 64,365/- AS FRINGE BENEFIT TAX (FBT) UNDER THE HEAD SALES PROMOTION E XPENSES. THE RATE OFFERED BY ASSESSEE WAS 5% INSTEAD OF 20%, UNDER TH E PROVISIONS OF SECTION 115WC (1) (E) THE ASSESSEE EXPLAINED THAT THE EXPEN SES WERE IN THE NATURE LQUOKBZ DH RKJH[K @ DATE OF HEARING 2-09-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 6-09-2013 M/S PHARMED LIMITED - 2 - OF TRAVELLING, CONVEYANCE, BOARDING, LODGING AND FO ODING EXPENSES INCURRED ON EMPLOYEES WHENEVER THEY ATTENDED BUDGET REVIEW M EETINGS, CYCLE MEETINGS AND PHARMA RELATED EXHIBITIONS AND TRADE F ARES. IT WAS, THEREFORE, ARGUED THAT THE RATE OF ONLY 5% OF FBT WAS CHARGEAB LE AS PROVIDED IN SECTION 115WC(1)(E). THE AO DID NOT ACCEPT THE EXPL ANATION GIVEN. IT WAS OBSERVED BY HIM THAT SALE PROMOTION EXPENSES WERE T AXABLE AT THE RATE OF 20% UNDER THE PROVISIONS OF SECTION 115WC(1)(C). IT WAS ALSO OBSERVED BY HIM THAT THE ASSESSEE IN THE BOOKS OF ACCOUNTS ITSE LF HAD CATEGORIZED THESE EXPENSES AS SALES PROMOTION EXPENSES, WHICH WERE CO VERED BY SECTION 115WB(2)(D). IT WAS ALSO OBSERVED BY HIM THAT THE A SSESSEE HAD PAID FBT ON TRAVELLING AND CONVEYANCE EXPENSES AT THE RATE O F 5% SEPARATELY. AO, THEREFORE, HELD THAT RATE OF 20% SHOULD ALSO APPLY IN RESPECT OF FRINGE BENEFIT TAX ON SALES PROMOTION EXPENSES. ACCORDINGL Y HE TREATED 20% OF SALES PROMOTION EXPENSES AS FBT AND LEVIED TAX AS P ER LAW. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT(A) THAT IN CASE OF PHARMACEUTICAL COMPANIES CON CESSIONAL LEVY OF 5% WAS PROVIDED U/S 115WC(1)(E) IN RELATION TO TRAVELL ING AND CONVEYANCE EXPENSES. IT WAS ALSO SUBMITTED THAT THOUGH THE ASS ESSEE HAD CATEGORIZED THE EXPENSES AS SALES PROMOTION EXPENSES, THESE WER E ACTUALLY NOT OF THE NATURE OF SALES PROMOTION EXPENSES IN VIEW OF THE P ROVISION TO SECTION 115WB(2)(D). CIT(A) HOWEVER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN AND CONFIRMED THE ORDER OF AO, AGGRIEVED BY WHICH T HE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 4. BEFORE US, THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THOUGH THESE EXPENSES WERE CATEGORIZED AS SALES PROMOTION EXPENSES, THESE WERE ACTUALLY NOT OF THE NATURE OF SALES PROMOTION EXPEN SES AS DEFINED IN SECTION 115WB(2)(D). THE EXPENSES RELATED TO TRANSFER, CONV EYANCE AND USE OF HOTEL FOR BOARDING AND LODGING IN RELATION TO EMPLOYEES. IT WAS POINTED OUT THAT THE EXPENSES ON CONVEYANCE WERE COVERED BY SECTION 115WB(2)(F), THE EXPENSES ON USE OF HOTEL, BOARDING AND LODGING FAC ILITIES WAS COVERED BY SECTION 115WB(2)(G) AND TOUR AND TRAVEL EXPENSES WE RE COVERED BY SECTION 115WB(2)(Q). IT WAS FURTHER SUBMITTED THAT SECTION 115WC(2)(C) SPECIFICALLY M/S PHARMED LIMITED - 3 - PROVIDED THAT IN CASE OF PHARMACEUTICAL COMPANIES T HE EXPENSES COVERED BY CLAUSE F AND G WILL BE SUBJECTED TO LEVY OF FBT AT THE RATE OF 5% OF THE EXPENSES. SIMILARLY SECTION 115WB (1)(E) PROVIDED T HAT THE EXPENSES COVERED BY CLAUSE Q WILL BE SUBJECTED TO FBT AT THE RATE OF 5% OF THE EXPENSES. IT WAS THUS SUBMITTED THAT ONLY 5% OF EXP ENSES SHOWN BY THE ASSESSEE AS SALES PROMOTION EXPENSES HAVE TO BE CON SIDERED FOR FBT. 4.1 THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE I TSELF HAD CATEGORIZED THE EXPENSES AS SALES PROMOTION EXPENSES TO WHICH R ATE OF 20% APPLIES. IT WAS ALSO POINTED OUT THAT IN VIEW OF THE CATEGORIZA TION MADE BY ASSESSEE ITSELF, THE DETAILS OF EXPENSES WERE NOT EXAMINED. IN REPLY LEARNED AR FOR THE ASSESSEE SUBMITTED THAT HE HAD NO OBJECTION FOR EXAMINATION OF EXPENSES AND IN CASE THESE WERE FOUND TO BE COVERED BY CLAUSES F,G, AND Q, OF SECTION 115WB(2), THESE SHOULD BE TAXED AT TH E RATE OF 5% ONLY. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED MATTE R CAREFULLY. THE DISPUTE IS REGARDING RATE TO BE APPLIED IN RESPECT OF SALES PROMOTION EXPENSES FOR THE PURPOSE OF FBT. SINCE THE ASSESSEE HAD CATEGORIZED THESE EXPENSES AS SALES PROMOTION EXPENSES WHICH ARE COVE RED BY SECTION 115WB(2)(D) AND ENTITLED FOR LEVY AT THE RATE OF 20 %, THE AUTHORITIES BELOW HAVE APPLIED THE RATE OF 20%. THE CASE OF THE ASSES SEE IS THAT THOUGHT THESE EXPENSES WERE CATEGORIZED AS SALES PROMOTION EXPENS ES, THESE WERE ACTUALLY NOT IN THE NATURE OF SALES PROMOTION EXPEN SES. THESE EXPENSES RELATED TO TRAVELLING AND CONVEYANCE AND EXPENSES O N USE OF HOTEL FOR FOODING AND LODGING. THE EXPENSES ON TOUR AND TRAVE L ARE COVERED BY SECTION 115WB(2)(Q) WHICH AS PER SECTION 115WB(1)(E ) IS TO BE TAXED AT THE RATE OF 5% OF THE EXPENSES FOR FBT. THE EXPENSES ON CONVEYANCE WHICH IS COVERED BY SECTION 115WB(2)(F) AND THE EXPENSES ON USE OF HOTEL, BOARDING AND LODGING FACILITIES WHICH ARE COVERED BY CLAUSE (G) OF SECTION 115WB (2) ARE ALSO TO BE SUBJECTED TO FBT AT THE RATE OF 5% I N CASE OF PHARMACEUTICAL COMPANIES IN VIEW OF THE SPECIFIC PROVISIONS OF SEC TION 115WC(2)(C). HOWEVER THE EXACT NATURE OF EXPENSES HAS NOT BEEN E XAMINED BY THE AUTHORITIES BELOW WHO HAVE TREATED THE EXPENSES AS SALES PROMOTION M/S PHARMED LIMITED - 4 - EXPENSES ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNTS. IN OUR VIEW, IN ORDER TO ARRIVE AT A FAIR CONCLUSION IN THE MATT ER ALL THE DETAILS OF EXPENSES ARE REQUIRED TO BE EXAMINED AND IN CASE TH E EXPENSES FALL UNDER THE CLAUSES F,G, AND Q OF SECTION 115WB(2) THESE HA VE TO BE SUBJECTED TO LEVY OF FBT AT THE RATE OF 5% ONLY. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING AFRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE IN THIS ORDER AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESS EE. 6. THE OTHER GROUND RELATING TO LEGAL VALIDITY OF R EOPENING OF THE ASSESSMENT, WAS NOT PRESSED AT THE TIME OF HEARING BY THE LEARNED AR. WE, THEREFORE, DISMISS THE GROUND AS NOT PRESSED. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 6-9-2013 SD/- SD/- (R.K. GUPTA) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 6.9.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI