ACIT 11(1), MUMBAI V. JET SPPED AUDIO P.LTD, MUMBAI

ITA 7073/MUM/2013

• Counselvise Citation: 707319914 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 25-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: ASHOK SULHAR

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ./ I.T.A. NO.7072 TO 7074 /MUM/2013 ( / ASSESSMENT YEARS 2005-06, 2006-07 & 2007-08) ACIT 11(1), ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. / VS. M/S JET SPEED AUDIO PVT. LTD., 48, PRAVASI INDL. ESTATE, 2 ND FLOOR, OPP. AAREY TOAD, GOREGAON (E), MUMBAI. ./ PAN : AAACJ0260A ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI LOVE KUMAR (D.R.) R E SPONDENT BY : SHRI ASHOK SULHAR / DATE OF HEARING : 25-05-2015 / DATE OF PRONOUNCEMENT : 25-05-2015 [ !' / O R D E R PER R.C. SHARMA, AM : THESE ARE THE APPEALS FILED BY THE REVENUE ARE DIRE CTED AGAINST THREE SEPARATE ORDERS PASSED BY THE LD. CIT(A) -3, MUMBAI DATED 23-09-2013 FOR THE ASSESSMENT YEARS 2005-06, 2006-07 & 2007-08 IN THE MATTER OF IMPOSITION OF PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. THE FOLLOWING COMMON GROUND HAS BEEN RAISED BY T HE REVENUE IN ALL THESE THREE APPEALS:- ITA 7072 TO 7074/M/13 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY SX ]. 271(1)(C) LEVIED WITH RESPECT TO THE EDUCATION EXPENSES OF THE SONS OF PR OMOTER DIRECTORS CLAIMED ~ EXPENDITURE IN THE P & L A/ C. THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASS ESSMENT YEARS 2005-06 TO 2007-08 IN THE QUANTUM APPEAL WHEREIN ADDITION MADE ON ACCOUNT OF EDUCATIONAL EXPENSES OF THE SONS OF PROMOTER DIRECT ORS WAS DELETED BY THE TRIBUNAL IN ITS ORDER DATED 11 TH DECEMBER, 2013. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. DURING THE COURSE OF SCRUTINY ASSESSMENT, ADDITION WAS MADE ON ACCOUNT OF EDUCATIONAL EXPENSES OF THE SONS OF DIRECTORS WHICH WAS TREATED AS PERQUISITE IN THE HANDS OF THE ASSESSEE. THEREFORE, PENALTY WAS IMPOS ED U/S 271(1)(C) OF THE ACT FOR SUCH ADDITION. WE FIND THAT THE TRIBUNAL VI DE ITS ORDER DATED 11 TH DECEMBER, 2013 (SUPRA) FOR ALL THE YEARS UNDER CONS IDERATION IE. 2005-06, 2006-07 & 2007-08 HAS DELETED THE ADDITION AFTER OB SERVING AS UNDER:- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD THERE IS NO DISPUTE THAT THESE TWO DIRECTORS AFTER COMPLETING THEIR BASIC EDUCATION WERE EMPLOYED IN THE ASSESSEE COMPANY IN THE EARLIER YEAR AND SUBSEQUENTLY THEY WERE SENT FOR HIGHER EDUCATION OF MBA AND TECHNICAL COURSES TO FOREIGN COUNTRIES. IT IS NOT DISPUTED BY THE A.O THAT THE ASSESSEE TOOK THE UNDERTAKING/BOND FROM THESE TWO DIRECTORS FOR JOINI NG BACK TO THE ASSESSEE COMPANY AFTER COMPLETING THEIR RESPECTIVE HIGHER ED UCATION. AT THE OUTSET WE NOTE THAT FOR THE ASSESSMENT YEARS 2006-07 AND 2007 -08 THE ASSESSEE PAID THE FRINGE BENEFIT TAX ON THESE EDUCATION EXPENSES. THE ASSESSING OFFICER HAS CATEGORICALLY DEALT WITH THE PAYMENT OF VALUE AND C HARGEABILITY OF FRINGE BENEFIT TAX AS MENTIONED IN THE ASSESSMENT ORDER U/ S 115 WE: AFTER VERIFICATION, THE VALUE OF FRINGE BENEFIT CHARGEABL E TO TAX IS ACCEPTED AT ` 12,91,235/-. THUS, IT IS CLEAR THAT THE FRINGE BEN EFIT TAX PAID BY THE ASSESSEE HAS BEEN DULY EXAMINED BY THE A.O AND THEN ACCEPTED . ONCE THE A.O HAS ACCEPTED THE FBT PAID BY THE ASSESSEE THEN SUCH EXP ENDITURE CANNOT BE DISALLOWED. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF HANSRAJ ITA 7072 TO 7074/M/13 3 MATHURADAS VS ITO (SUPRA) HAS CONSIDERED AN IDENTIC AL ISSUE IN PARA 17 AS UNDER: 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FO R THE ASSESSEE HAS TAKEN US THROUGH THE CBDT CIRCULAR NO. 8/2005 DATED 29-08-2005 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 BEHI ND LEVYING FRINGE BENEFIT TAX. AS INDICATED IN THE SAID 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/F RINGE BENEFITS IN THE HANDS OF THE EMPLOYEES IN TERMS OF SECTION 17. FURT HER, AS EXPLAINED IN PARA NO. 3.2 OF THE CIRCULAR, THE SCOPE OF THE TERM FRINGE BENEFITS PROVIDED IS DEFINED IN SECTION 11 5WB (1) TO MEAN ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PRIVILEGE, SE RVICE FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMP LOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE, TO HIS EMPLOYEES . MOREOVER, AS CLARIFIED IN THE SAID CIRCULAR WHILE ANSWERING FREQ UENTLY ASKED QUESTION NO. 15, FRINGE BENEFIT IS DEEMED TO HAVE BEEN PROVI DED 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 EXPENSES BETWEEN THOSE INCURRED FOR OFFICIAL PURPOSES AND PE RSONAL PURPOSES. IT WAS FURTHER CLARIFIED WHILE ANSWERING QUESTION NO. 81 THAT WHEN EXPENDITURE ON RUNNING AND MAINTENANCE OF MOTOR CAR S IS LIABLE TO FRINGE BENEFIT TAX, THE EMPLOYEES WILL NOT BE LIABLE TO IN COME 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 FRIN GE BENEFIT TAX IS LEVIED ON THE EXPENSES INCURRED BY THE EMPLOYER IRRESPECTI VE OF WHETHER THE SAME ARE INCURRED FOR OFFICIAL OR PERSONAL PURPOSES . IN OUR OPINION, ONCE FRINGE BENEFIT TAX IS LEVIED ON SUCH EXPENSES AS HA S BEEN DONE IN THE PRESENT CASE, IT FOLLOWS THAT THE SAME ARE TREATED AS FRINGE BENEFITS PROVIDED BY THE ASSESSEE AS EMPLOYER TO ITS EMPLOYE ES AND THE SAME HAVE TO BE APPROPRIATELY ALLOWED AS EXPENSES INCURR ED WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOS E OF ITS BUSINESS. IN THAT VIEW OF THE MATTER, WE DELETE THE DISALLOWANCE MADE BY THE A.O AND CONFIRMED BY THE LEARNED CIT(A) OUT OF CONVEYANCE A ND TELEPHONE EXPENSES AND ALLOW GROUND NO. 4 AND 5 OF THE ASSESS EES APPEAL. 8. APART FROM THE PAYMENT OF FRINGE BENEFIT TAX AND AC CEPTANCE OF THE SAME BY THE REVENUE WE FURTHER NOTE THAT THE EXPEND ITURE IN QUESTION HAS BEEN INCURRED BY THE ASSESSEE FOR THE PROFESSIONAL HIGHER EDUCATION OF ITS EMPLOYEES (DIRECTORS) FOR REAPING THE BENEFIT OF TH E SAID HIGHER EDUCATION AND ACCORDINGLY THE SAID EXPENDITURE IS AN ALLOWABL E BUSINESS ITA 7072 TO 7074/M/13 4 EXPENDITURE. THE HONBLE JURISDICTION HIGH COURT IN CASE OF SAKAL PAPERS PVT. LTD. VS CIT (SUPRA) HAS HELD AS UNDER: ON THESE FACTS, IT APPEARS TO US IMPOSSIBLE TO ACCEPT THE TRIBUNALS C ONTENTION THAT MERELY BECAUSE THERE WAS NO COMMITMENT OR CONTRACT OR BOND TAKEN FROM THE TRAINEE, THE EXPENDITURE, WHICH WAS OTHERWISE PROPE R, SHOULD BE DISALLOWED TO THE COMPANY, PARTICULARLY WHEN AS A R ESULT OF THAT EXPENDITURE THE TRAINEE HAS SECURED BOTH A DEGREE A ND TRAINING WHICH WILL BE OF ASSISTANCE TO THE ASSESSEE-COMPANY AND SHE HA S IN FACT SERVED THE ASSESSEE-COMPANY AFTER HER RETURN TO INDIA. THE REL ATIONSHIP BETWEEN THE DIRECTORS AND THE TRAINEE IS ALSO TO BE BORNE IN MI ND. WITH THAT RELATIONSHIP THE QUESTION IS WHETHER ANY FORMAL CON TRACT OR BOND IS REQUIRED. WE ARE OF THE OPINION, THAT THE FACTUM OF RELATIONSHIP ITSELF WILL CONFER ASSURANCE ON ANY SCRUTINISING MIND THAT AS F AR AS POSSIBLE THE RESULT OF THE TRAINING WILL BE UTILISED FOR THE BEN EFIT OF THE COMPANY. ON THE FACTS AS FOUND BY THE TRIBUNAL, WHICH HAVE BEEN INDICATED AND SUMMARIZED ABOVE, IS APPEARS TO US THAT THE REASON GIVEN BY THE TRIBUNAL FOR THE DISALLOWANCE IN THE FACTS AND CIRCUMSTANCES OF THIS CASE AND PARTICULARLY BEARING IN MIND THE CLOSE RELATIONSHIP OF THE TWO DIRECTORS AND THE TRAINEE IS CLEARLY UNSUSTAINABLE; AND IF TH AT BE THE ONLY REASON WHICH HAS WEIGHED WITH THE TRIBUNAL, WE MUST ANSWER THE QUESTION REFERRED TO US IN FAVOUR OF THE ASSESSEE SINCE THE VIEW WE HAVE TAKEN IS THAT THE REASON GIVEN BY THE TRIBUNAL IS NOT A GOOD REASON. 9. THE ABOVE DECISION OF THE HONBLE JURISDICTION HIGH COURT IS APPLICABLE IN THE FACTS OF THE CASE IN HAND. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE ABOVE DISCUSSION WE DELETE THE ADDITION MADE BY THE A.O ON THIS ACCOUNT AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE DECISION RELIED UPON BY THE A.O ARE CLEARLY DISTINGUISHABLE ON THE FACTS AND THEREFORE WOULD NOT HELP THE CASE OF THE REVENUE. 4. IT IS CLEAR FROM THE ABOVE THAT THE ADDITION WIT H REGARD TO WHICH THE PENALTY HAS BEEN IMPOSED HAS BEEN DELETED BY THE TR IBUNAL, THEREFORE, THE PENALTY ORDER HAS NO LEGS TO STAND. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) DELETING THE PENALTY SO LEVIED BY THE A. O. IN ALL THE YEARS UNDER CONSIDERATION. ITA 7072 TO 7074/M/13 5 5. IN THE RESULT, ALL THE THREE APPEALS FILED BY TH E REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MAY, 2015. !' # $% &! ' 25-05-2015 ( ) SD/- SD/- (D. MANMOHAN) (R.C. SHARMA) VICE PRESIDENT ACCOUNTANT MEMBER $ 4 MUMBAI ; &! DATED .5../ RK RKRK RK , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 6 () / THE CIT(A) CONCERNED,, MUMBAI 4. 6 / CIT -CONCERNED, MUMBAI 5. 9:( 55;< , ;< , $ 4 / DR, ITAT, MUMBAI E BENCH 6. (>? @ / GUARD FILE. ' / BY ORDER, 9 5 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 4 / ITAT, MUMBAI