DCIT RG 8(3), MUMBAI V. TOTAL FINAELF INDIA LTD NOW KNOWN A S TOTAL OIL, MUMBAI

ITA 6747/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8974 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Assessee Lawyers: SANJIV M SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.6747/MUM/2011 ASSESSMENT YEAR-2006-07 THE DCIT-, RANGE 8(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. TOTAL FINAELF INDIA LTD., NOW KNOWN AS TOTAL OIL, 3 RD FLOOR, LEELA GALLERIS, ANDHERI (E), MUMBAI-400 059 PAN-AAACE 1877C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI V. KRISHNAMOORTHY RESPONDENT BY: SHRI SANJIV M. SHAH DATE OF HEARING :06.09.2012 DATE OF PRONOUNCEMENT:12.09.2012 O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE HAS CHALLENGED THE CORR ECTNESS OF THE ORDER OF LD. CIT(A)-18, MUMBAI DT. 25.7.2011 PERTAI NING TO ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN EXCLUDING SALES PROMOTION EXPENSES OF RS. 6,65,83,073/- FROM FRINGE BENEFIT T AX, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO DURING ASSESSMENT PROCEEDINGS AND REMAND PROCEEDINGS AS WELL. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN EXCLUDING PROMOTION EVENT EXPENSES OF RS. 1,18,44,009/- FROM FRINGE. THE ITA NO. 6747/M/2011 2 APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASKED AND THAT OF THE ITO/ACIT/DCIT B E RESTORED. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT FO R THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY FILED ITS RETUR N OF FRINGE BENEFIT TAX (FBT) AT RS. 1,64,81,201/-. NOTICE U/S. 115WD WAS ISSUED AND SERVED ON THE ASSESSEE ON 26.10. 2007. THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF RECONCILIATION OF THE FBT RETURN WITH THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. AFTER SCRUTINIZING THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS IN CURRED FOLLOWING EXPENSES UNDER THE HEAD SALES PROMOTION, ADVERTISEMENT & PUB LICITY (A) SALES PROMOTION (OTHERS) -RS. 6,65,83,072/- (B) PROMOTIONAL EVENTS (PRODUCT CAMPAIGN) -RS. 46,70 ,164/- (C) PROMOTIONAL EVENTS (MEETS) -RS. 71,73,845/- IT WAS THE CONTENTION OF THE ASSESSEE THAT THESE EXP ENSES ARE NOT LIABLE TO FBT. THE AO OBSERVED THAT THE ASSESSEE H AS NOT FILED ANY FURTHER DETAILS IN RELATION TO THE AFORESAID EXPENSES NOR T HE ASSESSEE GAVE ANY PLAUSIBLE REASON TO EXPLAIN WHY THESE EXPENSES ARE NOT CONSIDERED FOR FBT. THE AO CONCLUDED THAT ONUS WAS ON THE ASSESSEE TO E STABLISH THAT THE EXPENSES WERE NOT LIABLE FOR FBT AND AS THE ASSESSE E HAS NOT PROVIDED ANY DETAILS OR EXPLANATION FOR SUBSTANTIATING ITS CLAIM , THEREFORE THE AO WENT ON TO CONSIDER THE ENTIRE EXPENSES OF RS. 7,84,27,081/- O N SALES PROMOTION, PROMOTIONAL EVENTS AND MEETS AS LIABLE FOR FBT @ 20 %. THE ASSESSEE AGITATED THIS FINDINGS OF THE AO BEFORE THE LD. CIT (A). 4. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE ASSESSEE FILED A CHART GIVING FULL DETAILS OF THE EXPENSES AND EXPLA NATIONS FOR EXCLUSION OF THE SAME FROM FBT. THE SAME WAS TRANSMITTED TO THE AO B Y THE LD. CIT(A) CALLING FOR A REMAND REPORT. THE AO SUBMITTED THE REMAND REPORT DT. 17.1.2011. AFTER CONSIDERING THE SUBMISSIONS AND T HE EXPLANATION GIVEN BY ITA NO. 6747/M/2011 3 THE ASSESSEE, THE LD. CIT(A) ALLOWED THE APPEAL AND DIRECTED THE AO TO EXCLUDE THE EXPENSES FROM FBT. 5. THE REVENUE IS AGGRIEVED BY THIS FINDING OF LD. CIT(A). BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDI NGS OF THE AO AND SUBMITTED THAT INSPITE OF SUFFICIENT OPPORTUNITIES PROVIDED TO THE ASSESSEE BY THE AO, THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLA IM. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ITS RETURN OF FBT, THE ASSESSEE HAS DULY CONSIDERED THE AMOUNT LIABLE FOR FBT INCURRED UNDER THE HEAD SALES PROMOTION INCLUDING PUBLICITY. THE ASSESSEE HAS ON LY EXCLUDED THOSE AMOUNTS WHICH COME UNDER THE EXEMPTIONS UNDER THE SCHEME OF FBT AS EXPLAINED BY THE CBDT VIDE ITS CIRCULAR 8/2005 DT. 29.8.2005. IT WAS FURTHER POINTED OUT BY THE LD. COUNSEL THAT FOR THE APPLICATION OF FB T, THERE SHOULD BE AN EMPLOYER/EMPLOYEE RELATIONSHIP BETWEEN THE PAYER A ND THE PAYEE (RECIPIENT) AND THERE MUST BE A CONSIDERATION FOR EMPLOYMENT A ND THERE SHOULD BE SOME ACTUAL BENEFIT. THE LD. COUNSEL ALSO DREW OUR ATTE NTION TO THE CIRCULAR ISSUED BY THE CBDT (SUPRA). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF LOWER AUTHORITIES AND ALSO THE CIRCULAR RELIED UPON BY THE ASSESSEE. AFTER GOING THROUGH THE ENTIRE SCHEME OF BRINGING FBT INT O STATUTE BOOK, WE FIND THAT THE TAX BASE FOR THE PURPOSE OF FBT IS THE VALUE OF FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES DURING THE PREVIOUS YEAR. THE DETERMINAT ION OF THE TAX BASE COMPRISES THREE ELEMENTS: A) THE SCOPE OF THE TERM FRINGE BENEFITS PROVIDED, B) THE SCOPE OF THE TERM FRINGE BENEFITS DEEMED TO HA VE BEEN PROVIDED AND C) THE BASIS OF VALUATION OF THE ABOVE. ITA NO. 6747/M/2011 4 7. BEING AN ALTOGETHER NEW CONCEPT INTRODUCED IN TH E STATUTE BOOK, A NUMBER OF ISSUES WERE RAISED BY THE TRADE AND INDU STRY AT DIFFERENT FORUMS AFTER THE PRESENTATION OF THE FINANCIAL BILL 2005 A ND ALSO AFTER ITS ENACTMENT. THE CBDT DECIDED TO CLARIFY THE ISSUES RAISED ON SU CH FORUM IN QUESTION AND ANSWER: Q. NO. 2 WHETHER EMPLOYER-EMPLOYEE RELATIONSHIP IS A PRE-REQUISITE FOR THE LEVY OF FBT? ANS. YES Q. NO. 60 WHETHER SALES PROMOTION INCLUDES SALES DISCOUNT OR REBATES TO WHOLESALERS OR CUSTOMERS OR BONUS POINTS GIVEN TO C REDIT CARD CUSTOMERS AND, IF SO, WHETHER FBT IS PAYABLE THEREO N? ANS. SALES DISCOUNT OR REBATES ALLOWED TO WHOLESALE DEALERS OR CUSTOMERS FROM THE LISTED RETAIL PRICE MERELY REPRE SENT LESSER REALIZATION OF THE SALE PRICE ITSELF. THE BONUS PO INTS GIVEN TO CREDIT CARD CUSTOMERS ARE ALSO IN THE NATURE OF DEF ERRED SALE DISCOUNT. THEREFORE, DISCOUNTS OR REBATES OR BONUS POINTS ALLOWED TO CUSTOMERS OR WHOLESALE DEALERS ARE IN TH E NATURE OF SELLING EXPENSES AND OUTSIDE THE SCOPE OF THE PROVI SIONS OF CLAUSE (D) OF SUB-SECTION (2) OF SECTION 115WB OF T HE I.T. ACT. ACCORDINGLY, SUCH DISCOUNTS OR REBATES ARE NOT LIAB LE TO FBT. Q. NO. 61 WHETHER EXPENDITURE ON INCENTIVES GIVEN T O DISTRIBUTORS FOR MEETING QUANTITY TARGETS (INCLUDING FREE GOODS FOR ACHIEVING CERTAIN SALES TARGET LIKE, 100 FREE TELEVISIONS FOR ACHIEVING A TARGET SALE OF 10,000 TELEVISIONS AND CASH INCENTIV ES ADJUSTABLE AGAINST FUTURE SUPPLIES) IS LIABLE TO FBT? ITA NO. 6747/M/2011 5 ANS. `INCENTIVES GIVEN TO DISTRIBUTORS FOR MEETING SALES TARGETS (INCLUDING FREE GOODS GIVEN AS INCENTIVE TO DISTRIB UTORS FOR ACHIEVING CERTAIN SALES AND CASH INCENTIVES ADJUSTA BLE AGAINST FUTURE SUPPLIES) ARE IN THE NATURE OF PERFORMANCE-B ASED COMMISSION. SUCH PERFORMANCE-BASED COMMISSION IS I N THE NATURE OF ORDINARY SELLING COST. THEREFORE, EXPEND ITURE INCURRED FOR THE PURPOSE OF PROVIDING INCENTIVES GIVEN TO DI STRIBUTORS FOR MEETING SALES TARGETS (INCLUDING FREE GOODS FOR ACH IEVING CERTAIN SALES TARGET AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) DO NOT FALL WITHIN THE SCOPE OF CLAUSE (D ) OF SUB- SECTION (2) OF SEC. 115 WB AND, THEREFORE, NOT LIAB LE TO FBT. 8. NOW LET US SEE WHETHER THE EXPLANATIONS OF THE A SSESSEE FIT INTO THE ANSWERS GIVEN BY THE CBDT ON THE QUESTIONS PERTAINI NG TO THE FACTS OF THE CASE. S. NO. EXPENSE HEAD AMOUNT (RS) NATURE OF EXPENSES 1. SALES PROMOTION(OTHERS) 1,33,16,614/- DISCOUNT SCHEMES, FESTIVAL DISCOUNTS, SALES DISCOUNTS TARGET INCENTIVES GIVEN TO THE DISTRIBUTORS 2. PROMOTIONAL EVENTS (PRODUCT CAMPAIGNS) 9,34,123/- EXPENDITURE INCURRED FOR THE AWARENESS OF THE NEW PRODUCTS TO THE DISTRIBUTORS AND DEALERS WHICH IS MAINLY IN THE NATURE OF VARIOUS INCENTIVES. 3. PROMOTIONAL EVENTS (MEETS) 14,34,769/- EXPENDITURE INCURRED ON PRESS CONFERENCES, BUSINESS CONVENTIONS AND EXHIBITIONS AS WELL AS DEALERS/MECHANICAL MEETS FOR LISTENING TO THEIR PROBLEMS AS WELL AS TO MARK CERTAIN EVENTS. 9. AFTER CAREFULLY CONSIDERING THE DETAILS FILED BY THE ASSESSEE AND THE EXPLANATIONS GIVEN BY THE CBDT IN ITS CIRCULAR, WE HAVE NO HESITATION TO HOLD THAT ALL THESE EXPENSES HEREINABOVE ARE OUTSIDE THE PURVIEW OF FBT. WE ALSO ITA NO. 6747/M/2011 6 FIND THAT THE LD. CIT(A) HAS ALLOWED THE APPEAL REL YING UPON THE AFOREMENTIONED CIRCULAR OF CBDT. THEREFORE, WE DO NOT FIND ANY REASON TO TINKER WITH THE FINDINGS OF THE LD. CIT(A) WHICH WE CONFIRM. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 12 TH DAY OF SEPTEMBER, 2012 SD/- SD/- (D.K. AGARWAL) (N.K. BILLAIYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 12 TH SEPTEMBER, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI