Income Tax Appellate Tribunal - Mumbai
Kotak Mahindra Bank Limited, Mumbai vs Assessee on 23 July, 2014
अिधकरण मुंबई Ûयायपीठ 'ए' मुंबई ।
आयकर अपीलीय अिधकरण,
IN THE INCOME TAX APPELLATE TRIBUNAL " A" BENCH, MUMBAI
सव[ौी डȣ. मुमोहन, उपाÚय¢ एवं , नरे Ûि कुमार ǒबãलैáया, लेखा सदःय के सम¢
BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 2656/Mum/2013
िनधा[रण वष[ / Assessment Year :2008-09
(िनधा[
Kotak Mahindra Bank Ltd., बनाम/ बनाम The DCIT, Range 3(2),
36-38A Nariman Bhavan, Aayakar Bhavan,
Vs.
227, Nariman Point, Mumbai-400 020
Mumbai-400 021
ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACK 4409J
(अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent)
अपीलाथȸ ओर से/ Appellant by: Shri Farrokh Irani
ू×यथȸ कȧ ओर से/Respondent by: Shri Sambit Mishra
सुनवाई कȧ तारȣख / Date of Hearing :09.07.2014
घोषणा कȧ तारȣख /Date of Pronouncement :23.07.2014
आदे श / O R D E R
PER N.K. BILLAIYA, AM:
This appeal by the assessee is directed against the order of the Ld. CIT(A)-4, Mumbai dt.23.1.2013 pertaining to A.Y. 2008-09.
2. The grievances of the assessee read as under:
GROUND NO.1 -- Invalid Re-Assessment Proceedings 2 ITA No. 2656/M/2013
1. The Commissioner of Income tax (Appeals) -- 4 ("hereinafter referred as to the CIT(A)") erred in confirming the reassessment proceedings initiated u/s 115WG of the Income tax Act, 1961 ("the Act") by the Assessing Officer.
2. He failed to appreciate and ought to have held that:
a. The entire reopening proceedings u/s 148 are "bad in law"
b. All material facts regarding the FBT were truly and fully disclosed in the Income tax Return and in Tax Audit Report.
c. No fresh material has been brought on record by the AO and the assessment has been reopened based on the same facts which were available on record and such reopening tantamount to change of opinion.
GROUND NO. 2 -- FBT is not chargeable when there is no Fringe Benefit provided to the employees
1. The CIT(A) erred in confirming the addition of Rs.6,73,07,926 being value of fringe benefit on the expenditure of Rs.47,1i,61,292 incurred by the Appellant on Telephone, Travel, Conference & Meeting, and Business Promotion Expenses.
2. The Appellant therefore, prays that the AO be directed to delete the addition of Rs.6,73,07,926 being value of fringe benefit on expenditure of Rs.47,11,61,292 for the purpose of calculating Fringe Benefit Tax (FBT), GROUND NO.3 -- Conference & Meeting
1. The CIT(A) erred in holding that expenditure of Rs.8,72,84,455 incurred by the Appellant on Conference and Meeting was liable to the levy of FBT as this expense did not result in any benefit to the employees.
2. The Appellant therefore, prays that the said amount be excluded from the levy of FBT as claimed by Appellant.3 ITA No. 2656/M/2013
GROUND NO.4 --Business Promotion Expenses
1. The CIT(A) erred in holding that expenditure of Rs.8,45,52,043 incurred by the Appellant on Business Promotion was liable to the levy of FBT as this expense did not result in any benefit to the employees.
2. The Appellant therefore, prays that the said amount be excluded from the levy of FBT as claimed by Appellant.
GROUND NO.5 -- Mobile Phone Expenses
1. The CIT(A) erred in holding that expenditure of Rs.7,09,20,891 incurred by the Appellant on Mobile Phone Expenses was liable to the levy of Fringe Benefit Tax as this expenses did not result in any benefit to the employees.
2. The Appellant therefore, prays that the said amount be excluded from the levy of FBT as claimed by Appellant.
GROUND NO.6 -- Travelling Expenses (Domestic & Foreign Fare)
1. The CIT(A) erred in holding that expenditure of Rs.17,94,95,549 incurred by the Appellant on travel was liable to the levy of Fringe Benefit Tax as this expenses did not result in any benefit to the employees.
2. In the alternative and without prejudice to the above the benefit, if any, was not collective in nature and therefore did not fall within the scope of FBT.
GROUND NO.7 -- Travelling Expenses (Hotel Lodging & Boarding)
1. The CIT(A) erred in holding that expenditure of Rs.4,89,08,354 incurred by the Appellant on travel was liable to the levy of Fringe Benefit Tax as this expenses did not result in any benefit to the employees.
4 ITA No. 2656/M/20132. In the alternative and without prejudice to the above the benefit, if any, was not collective in nature and therefore did not fall within the scope of FBT."
3. With ground No. 1 the assessee claims that the entire reopening proceedings initiated u/s. 115WG of the Act are bad in law as no fresh material has been brought on record by the AO and the assessment has been reopened based on the same facts which were available on record.
4. The assessee is in the business of banking. The original return was filed on 299.2008 declaring a value of Fringe Benefit at Rs. 33,65,98,960/-. The said return was processed u/s. 115 WE(1) of the Act. Subsequently, the assessment proceedings were reopened u/s. 115 WG of the Act. The reasons for the reopening of the assessment read as under:
"The assessee has filed return of Fringe Benefit u/s I15WD on 29.09.2008 declaring value of Fringe Benefit of Rs 33,65,98,960/-. The assessee has officered the following expenses (as per chart below,) in arriving at the value of Fringe Benefit Tax, S. Nature expenses Exp. % of Value of No. Amount Rs. expenses Fringe Benefit
1. Employee's Welfare 136,829,594 20% 27,365,919 expenses
2. Entertainment 1,073,835 20% 214,767 expenses
3. Festival Celebration 3,072,775 50% 1,536,388 expenses
4. Use of any club 1,186,370 50% 593,185 facilities
5. Gifts 1,734,160 50% 867,080
6. Motor car expenses 50,482,675 20% 10,096,535
7. ESOP 295,925,087 100% 295,925,087 Total 490,304,496 336,598,960 5 ITA No. 2656/M/2013 From the Notes to Annexure ' Value of Fringe Benefit' in the Tax Audit Report it is seen that the assessee has not considered the expenses on account of 'conference and meeting', 'business promotion and gift expenses', 'telephone expenses, 'travel expenses', 'conveyance expenses', hotel/lodging & boarding' expenses for FBT. The assessee has stated that above expenses are normal legitimate business expenditure and not pertaining to welfare of employees and hence not liable to Fringe Benefit Tax u/s 115 WA of the I.T Act.
.
However, it is submitted that Section 115 WB (2) provides that the Fringe Benefit shall be deemed to have been provided by the employer to his employee if the employer during the course of his business incurred inter alia expenditure such as Telephone Expenses 'Travel fare 'Business Promotion' and 'Hotel and Boarding'. Further, it is observed that the said expenses have been treated as fringe benefit in earlier years in assessee 's own case and the Ld CIT(A) vide his order for Assessment year 2006-07 has treated these expenses (except office telephone landline expenses and conveyance an car hire charges) as being liable to FBT tax. In view of the above provisions, expenditure amounting to Rs. 47,11,61,293/- (as per details below) has not been considered in arriving at the value of Fringe Benefit.
S.No. Nature expenses Expenditure % of Value of
incurred Fringe Fringle
(Rs.) Benefit Benefit (Rs.)
1. Conference & Meeting 87,284,455 20% 17,456,891
2. Business promotion & 84,552,043 20% 16,910,400
Gift expenses
3. Telephone-Mobile 70,920,891 20% 14,184,178
Exps
4. Travel Exps. Domestic 179,495,549 5% 8,974,777
& Foreign fare
5. Use of Hotel/lodging 48,908,354 20% 9,781,671
and boarding
Total 471,161,292 67,307,926
6 ITA No. 2656/M/2013
Since the assessee has not offered the above expenses to fringe benefit tax, I have reason to believe that Fringe Benefits amounting to Rs 47.11 crore chargeable to tax have escaped assessment, hence, the assessment proceedings are reopened u/s 1I5WG of the I.T. Act"
5. The assessee objected to the reopening proceedings u/s. 115WG of the Act. The AO was of the opinion that where the regular assessment has not been completed u/s. 143(3) and the return has been processed u/s. 143(1), as a result of which income has been escaped assessment, the reassessment within 4 years is permissible. The AO thereafter went on to compute the fringe benefit tax for expenditure incurred on (1) Conference & Meeting (2) Business promotion expenses (3) Telephone-mobile expenses (4) Travel expenses Domestic & foreign and (5) use of hotel/lodging and boarding.
6. Aggrieved, assessee carried the matter before the Ld. CIT(A). Before the Ld. CIT(A), the assessee once again challenged the validity of reassessment proceedings. The Ld. CIT(A) did not accept the contention of the assessee. The Ld. CIT(A) observed that no assessment was made of the FBT by the AO and the return was merely processed and it is within 4 years of assessment years that the case has been reopened. According to the Ld. CIT(A), the AO has rightly reopened the case and there is no irregularity in issue of notice for reopening. On merit of the case, the Ld. CIT(A) followed the decision of his predecessor for A.Y. 2006-07.
7. Aggrieved by this, the assessee is before us. The Ld. Counsel for the assessee reiterated that the reopening of the assessment is bad in law inasmuch as there was no new tangible material evidence which 7 ITA No. 2656/M/2013 prompted the AO to reopen the assessment. It is the say of the Ld. Counsel that even if the original return was processed u/s. 115WE(1) and no regular assessment has been made u/s. 115 WE(3) of the Act, the assessment cannot be reopened unless there is some new tangible material evidence. For this proposition, the Ld. Counsel strongly relied upon the decision of the Hon'ble Delhi Court in the case of CIT Vs Orient Craft Ltd. 354 ITR 536. The Ld. Counsel further supported his claim by the Third Member decision of the Tribunal, Mumbai Bench in the case of Telco Dadajee Dhackjee Ltd. in ITA No. 4613/M/05.
8. The Ld. Departmental Representative supported the findings of the authorities below and relied upon the decision of the Hon'ble Allahabad High Court in the case of EMA India ltd. Vs ACIT 226 CTR 659.
9. We have carefully considered the rival submissions and perused the orders of the lower authorities and the decisions relied upon by the rival parties. It is not in dispute that the return was processed u/s. 115WE(1) of the Act. The return was accompanied by statutory report wherein it was specifically mentioned that the assessee has not considered the expenses on account of conference and meeting, business promotion Telephone-mobile expenses, Travel expenses, lodging and boarding expenses for FBT. It was also made very clear in the original return itself in the statutory audit report that these expenses have not been considered for the levy of FBT because they are legitimate business expenditure and not pertaining to welfare of employees and hence not liable to FBT u/s. 115WA of the Act. It is not in dispute that these details were very much before the AO when he processed the return u/s. 115WE(1) of the Act. The following observations of the Hon'ble Delhi High Court in the case of Orient Craft Ltd (supra), at this juncture would be very relevant.
8 ITA No. 2656/M/2013"The expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) of the Income- tax Act, 1961, and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements.
10. We find that the reasons disclosed by the AO that there was escapement of income on going through the return of FBT filed by the assessee after he accepted the return u/s. 115WE(1) without scrutiny and nothing more. This is nothing but a review of the earlier proceedings and as observed by the Hon'ble Delhi High Court (supra) " abuse of power by the AO". We further find that there is nothing in the reasons recorded to show that any tangible material had come into the possession of the AO subsequent to the issue of intimation. The ratio laid down by the Hon'ble Supreme Court in the case of CIT Vs Kelvinator of India Ltd. 320 ITR 561 very much apply even in respect of the assessments made u/s. 143(1)/115WE(1) of the Act. The decision relied upon by the Ld. DR do not support the Revenue authorities firstly it is dated 16th September, 2009. The decision of the Hon'ble Delhi High Court is dated 12.12.2012 and secondly it has relied upon the decision of the Gujarat High Court in the case of Praful Chunilal Patel Vs ACIT 148 CTR 62 which has been distinguished by the Full Bench of the Hon'ble Delhi 9 ITA No. 2656/M/2013 High Court in the case of Kelvinator of India Ltd. which was subsequently confirmed by the Hon'ble Supreme Court.
10.1. We find that the Hon'ble Delhi High Court in the case of Orient Craft Ltd. as distinguished the decision of the Hon'ble Supreme Court in the case of ACIT Vs Rajesh Jhaveri Stock Brokers Pvt. Ltd. 291 ITR 500 and has explained the ratio laid down by the Hon'ble Supreme Court in the case of Kelvinator of India (supra) and has held that even in the cases of assessment u/s. 143(1) {in the present case u/s. 115WE(1)}, the reopening of the assessment cannot be made unless there is some new tangible material evidence to support the reopening of the assessment. Respectfully following the decision of the Hon'ble Delhi High Court in the case of Orient Craft Ltd (supra), we set aside the notice issued u/s. 115WG and quash the reassessment order.
11. As we quashed the reassessment order, we do not find it necessary to go on the merits of the case.
12. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23rd July, 2014 .
आदे श कȧ धोषणा खुले Ûयायालय मɅ Ǒदनांकः 23.7.2014 को कȧ गई ।
Sd/- Sd/-
(D.MANMOHAN ) (N.K. BILLAIYA)
उपाÚय¢/VICE PRESIDENT लेखा सदःय / ACCOUNTANT MEMBER
मुंबई Mumbai; Ǒदनांक Dated : 23.7.2014
व.िन.स./ RJ , Sr. PS
10 ITA No. 2656/M/2013
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)-
4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai