Income Tax Appellate Tribunal - Delhi
The Printer House Pvt. Ltd., New Delhi vs Department Of Income Tax on 30 November, 2010
1 ITA No.962/Del/2011
Asstt.Year: 2007-08
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `H' NEW DELHI
BEFORE SHRI A.N. PAHUJA, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A. No. 962/Del/2011
Assessment Year : 2007-08
Dy.Commissioner of Income Tax, vs The Printer House Pvt. Ltd.,
Circle 16(1), 10, Scindia House,
New Delhi. New Delhi-110001
(Appellant) (Respondent)
Appellant by: Dr.B.R.R. Kumar, Sr. DR
Respondent by : Smt. Sweety Kothari
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the Revenue against the order of Commissioner of Income Tax(A)-XIX, New Delhi dated 30.11.2010 for AY 2007-08.
2. The grounds of appeal read as under:-
"1. The Ld. CIT (A) has erred on facts and in law by deleting addition of Rs. 2,07,658/-made u/s 115 WE(3) on account of gifts on which FBT was not paid by accepting the assessee's contention that the gifts were "machine gifts" distributed to workers as festival gifts and were taxable in the hands of the recipients, ignoring that:
(i) As per the provision of section 115 WB(2)(0) of the Act, all gifts come within the purview of FBT and there is bifurcation therein of different types of gifts. 2 ITA No.962/Del/2011 Asstt.Year: 2007-08
(ii) In the facts and circumstances of the case, it cannot be accepted that the "machine gifts" are taxable in the hands of the recipients and the assessee is not liable to offer the same for the purpose of FBT.
2. The Ld. CIT (A) has erred on facts and in the law by deleting addition of Rs.1,10,34,806/-made U/S 115 WE(3) on account of sales promotion expenses on which FBT was not paid, by accepting the assessee's contention that the same was exempt being exhibition expenses and not sales promotion expenses, ignoring that:
(i) The assessee could not conclusively prove during the assessment proceedings that the said expenses were not sales promotion expenses but exhibition expenses.
(ii) The debit of the said expenses in the P&L account as exhibition and sales promotion expenses was misleading since the expenses were sales promotion expenses as cited in the assessment order.
(iii) On the facts and in the circumstances of the case, the additional evidence on which the decision is based has been admitted in contravention to the conditions' laid down under Rule 46A.
3. The Ld. CIT (A) has erred on fats and in law by deleting addition of Rs.6,70,115/-made u/s 115 WE(3) on account of hotel expenses on which only 5% had been considered by the assessee for the purpose of FBT instead of the prescribed rate of 20% by accepting the assessee's contention that the said expenses was actually tour expenses, ignoring that:
(i) The assessee could not satisfactorily explain during the assessment proceedings, why only 5% of the hotel expenses had been taken into consideration for the purpose of FBT.3 ITA No.962/Del/2011 Asstt.Year: 2007-08
(ii) The assessee could not satisfactorily establish during the assessment proceedings that the said expenses were not hotel expenses but were tour expenses.
(iii) On the facts and in the circumstances of the case, the additional evidence on which the decision is based has been admitted in contravention to the conditions laid down under Rule 46A".
3. Briefly stated the facts of the case are that the assessee is a leading manufacturer of Web Offset printing machines used by newspaper, magazine and other printing houses. The printing machines manufactured by the assessee are of varied varieties depending upon speed of copies per hour, cut-off sizes and compatibility with other machines. The assessee's return was selected for scrutiny and notice u/s 115WE(1) & 115WE(2) of the Income Tax Act, 1961 (for short the Act) was served on the assessee. The Assessing Officer made an addition of Rs.30,84,734 by adding total value of fringe benefits pertaining to machine gifted to the employees of the assessee, sales promotion expenses and hotel expenses. The assessee filed an appeal before the Commissioner of Income Tax(A) which was allowed by the impugned order. Now, the revenue is before this Tribunal with this appeal.
Ground no.1
4. Apropos ground no.1 from the assessment order, we observe that the Assessing Officer made an addition of Rs.2,07,658 being fringe benefit 4 ITA No.962/Del/2011 Asstt.Year: 2007-08 value of gifts of Rs.4,15,316. The operative portion of the assessment order in this regard reads as under:-
"The above submission of the assessee has not been found correct. As per the provisions of I T Act, the 'gift' items attract FBT, as is clearly mentioned in sec.115WB(2)(O). The assessee can not distinguish between different kinds of 'gifts'. A plea can not be taken that 'machine gifts' are taxable in the hands of recipients. As per the provisions of law a gift is covered in the ambit of FBT and hence, the assessee is required to offer the same for FBT purposes @50% as per the provisions of section 115WC(1)(d). Since the assessee has failed to do so, the value of fringe benefits on the gifts of Rs, 4,15,316/- is computed at Rs. 2,07,658/- and added to total value of fringe benefits."
5. The Commissioner of Income Tax(A) considered this ground and held as under:-
"7.1 The total expense under the head gift and festival expenses was Rs. 14,39,636/ - (included under, various schedules of expenses). The assessee has paid FBT on Rs. 2,25,101/- being gifts and on Rs. 7,99,219/- being Festival expenses. However, the assessee excluded a sum of Rs. 4,15,316/- out of the total amount of Rs. 14,39,636/-being machine gifts given to factory worker/employees which was also considered by the AO for the purpose of FBT. The said amount was duly subjected to taxation in the hands of employees and TDS was made.
7.2 After careful consideration of the facts brought on record, I agree with the contentions of the AR and the action of the AO is not upheld."5 ITA No.962/Del/2011 Asstt.Year: 2007-08
6. The DR submitted that the Assessing Officer held that as per Section 115WB(2)(O) of the Act the gift items attract FBT. The DR submitted that the assessee cannot distinguish between different kinds of gifts and he cannot take a plea that the machines gifted to the employees are taxable in the hands of the recipient because as per provisions of law, machine gift is also covered in the ambit of FBT and the assessee is required to offer this amount for FBT purposes @50% following the provisions of section 115WC(1)(d) of the Act.
7. Replying to the above submissions, the assessee's representative has drawn our attention towards his submissions before the Commissioner of Income Tax(A) on paper book page no. 101 to 105 wherein para 4, 4.1 and 4.2 comprises the submissions of the assessee. The AR submitted that the said amount of machine gift was not a gift but it was an incentive paid to the employees and labor of the assessee on the occasion of Diwali. It was a part of the salary and wages of the employees and labourers of the factory and was taxable in their hands and the said amount was subjected to taxation in the hands of employees and TDS was made in this regard.
8. After careful consideration of the submissions of both the parties and perusal of record from page no. 78 to 87, it reveals that the total gifts were given amounting to Rs.9,96,071 to the administrative staff, officers, other 6 ITA No.962/Del/2011 Asstt.Year: 2007-08 staff and workers and employees. Form no. 16 available from page no. 79 to 87 of the paper book reveals that the gift has been included as perquisite to the employees and TDS has been made thereon.
9. In view of above, we observe that the addition made by the Assessing Officer was not sustainable and the Commissioner of Income Tax(A) rightly held that the machine gifts given to the factory workers and employees which was considered by the Assessing Officer for the purpose of FBT was duly subjected to taxation in the hands of beneficiaries that is employees and labourers and the assessee also made TDS thereon. Accordingly, we have no reason to interfere with the findings of the Commissioner of Income Tax(A) in this regard. Hence ground no.1 deserves to be dismissed and we dismiss the same.
Ground no. 2
10. Apropos ground no.2, the DR submitted that the Assessing Officer observed that the assessee has included only Rs.12,25,674/- in FBT and balance amount of Rs.1,10,34,806 has not been offered for FBT. The DR also submitted that the assessee could not conclusively prove that these expenses were related to exhibition because in the profit and loss account the assessee has debited the expenses in the name of exhibition and sales promotion misleading the entire detail related to these expenses. The DR 7 ITA No.962/Del/2011 Asstt.Year: 2007-08 also submitted that there was a sharp increase in sales promotion expenses during the year under consideration. Therefore, the Assessing Officer examined the issue and rightly concluded that these expenses were not exhibition related and was actually related to sales promotion. Hence, the action of the Assessing Officer was justified. The DR also submitted that the Commissioner of Income Tax(A) was not justified in deleting the addition because the assessee could not prove that the nature of these expenses were actually related to the exhibition held within and outside India.
11. The assessee's representative supported the impugned order and submitted that on page 25 of the paper book, the assessee submitted the details of exhibition outside and within India and the assessee submitted the full break up of the expenditure incurred in this regard and also on gifts and festival expenses, sales promotion and customer training expenses. The AR also submitted that the assessee incurred exhibition expenditure for the exhibition held in South Korea, Indonesia, Germany, Singapore, Africa and Poland, therefore, the impugned order is justified.
12. After careful consideration of the submissions of both the parties in this regard, we observe that the assessee filed details of exhibition expenditure held outside and within India and assessee also submitted the 8 ITA No.962/Del/2011 Asstt.Year: 2007-08 details of expenditure related to gifts and festival expenses, sales promotion expenses and customer training expenses which were not considered by the Assessing Officer. The Commissioner of Income Tax(A) decided this issue with the following observations:-
"12.1 The assessee has incurred exhibition and sales promotion expenditure of Rs. 1,10,34,806/-. The AO subjected the same to FBT on the ground that the assessee has not proved that expenses are not in the nature of exhibition expenses but in the nature of sales promotion expenses by invoking provisions of S. 115WB(2)(D).
12.2 The break up of expenditure on exhibition is as under:
Outside India 86,23,708.76
In India 19,67,532.00
12.3 The following are the details of exhibition expenditure incurred outside India:
S. No. Name of the exhibition Country Held Period 1 KIPES 2006 South Korea 06.09.06 - 10.09.06
2. PRINT INDONESIA Indonesia 14.09.06 - 17.09.06 3 IFRA Expo -06 Germany 09.10.06 - 12.10.06 4 FRA Asia Exhibition-07 Singapore 27.03.07 - 28.03.07 5 Pro Pack Exhibition-07 Africa 13.03.07 - 16.03.07 6 Poligrafia Exhibition-07 Poland 27.03.07 - 30.03.07 12.4 The AR has stated that the AO has not controverted the findings brought on record and in a general way disbelieved the contentions and concluded that expenditure is on sales promotion liable for FBT.9 ITA No.962/Del/2011
Asstt.Year: 2007-08 12.5 After careful consideration of the facts brought on record, the contentions of the AR are tenable and the action of the AO is not upheld."
13. In view of above, we observe that the Assessing Officer ignored the fact that the assessee incurred expenditure related to the exhibition and the Assessing Officer was wrong in holding that the assessee has not proved that the expenses were not in the nature of exhibition expenses but in the nature of sales promotion expenses by invoking provisions of Section 115WB(2)(D) of the Act. Per contra, we observe that the Commissioner of Income Tax(A) was justified in considering the details of expenses incurred on exhibition by the assessee. The Assessing Officer has not brought any evidence or finding that the details of expenditure incurred on exhibition was not believable. Rather we observe that the Assessing Officer did not consider the material submitted before him by the assessee.
14. In view of above, we hold that the Assessing Officer was not justified in making disputed addition to FBT and the Commissioner of Income Tax(A) rightly deleted the same with a reasonable and justified consideration. Accordingly, ground no.2 of the revenue deserves to be dismissed and we dismiss the same.10 ITA No.962/Del/2011
Asstt.Year: 2007-08
Ground No.3
15. Apropos ground no.3, the DR submitted that the Assessing Officer found that the assessee has considered expenses of hotel at 5% by claiming that these were related to hotel expenditure (TA). The DR also submitted that the assessee was not correct and he was required to consider the same at 20% as per provisions of section 115WB(2)(G) r/w section 115WC(1)(c) of the Act. The DR further submitted that since the specific provision for hotel expenses was made as per section 115WB(2)(G) of the Act, therefore, the assessee cannot take out this head from the specific provision to another provision of section 115WE(2)(Q) of the Act. The DR concluded with a request that the Commissioner of Income Tax(A) was not justified in allowing this ground of the assessee.
16. The assessee's representative supported the impugned order and submitted that the hotel expenses were not paid directly to the hotels but it was paid to the employees by way of reimbursement of their traveling bills raised on assessee by the employees to meet their traveling expenses incurred by the employees during official tours. Hence, the Assessing Officer wrongly added this and the Commissioner of Income Tax(A) was right in deleting the same. The AR supported the impugned order. 11 ITA No.962/Del/2011 Asstt.Year: 2007-08
17. We have heard and carefully considered the rival submissions of both the parties and perused the record with paper book submitted by the assessee. In the impugned order, the Commissioner of Income Tax(A) decided this issue with following observations:-
"17. The assessee incurred Rs. 44,67,409/ - as hotel expenses. Since the description of the expenditure is "Hotel expenses" the AO considered 20% of the said expenditure liable for taxation as value of fringe benefits. The only dispute is with regard to rate of percentage to be applied for the purpose of FBT. The AR contended that the amount is paid as tour expenses and no amount is paid to hotels directly and taxable amount is 5% of such expenditure. As seen from the ledger account furnished, there is no direct payment to the hotels. The amount is paid to the employees for hotel expenditure and other expenditure incurred by the employees. Hence, the action of the AO is not upheld."
18. In view of above, the only dispute was with regard to the rate of percentage to be applied for the purpose of FBT. The assessee's representative has drawn our attention towards page no. 98, 99 and 100 wherein it reveals that the hotel expenses, payment was not made directly to the hotels by the assessee but it was a payment to the employees towards the cost incurred during the course of tour conducted by them for the business of the assessee. As per section 115WB(2)(G) if payment would have been made directly to the hotels, then the same would be covered under this provision and FBT should be computed @20% but since the amount has 12 ITA No.962/Del/2011 Asstt.Year: 2007-08 been paid towards the reimbursement of tour expenses incurred by the employees, then the same is covered under the head 'tour and travel expenses' and FBT should be computed @5%. In the present case, as per discussions made hereinabove, we decline to approve the action of the Assessing Officer and hold that the Commissioner of Income Tax(A) rightly concluded that the amount was paid as tour expenses as reimbursement to the employees and assessee has not paid any amount directly to the hotels and taxable amount of FBT has to be calculated @5% on such expenditure. Accordingly, we have no reason to interfere with the findings of the Commissioner of Income Tax(A) and ground no. 3 is also dismissed.
19. In the result, we finally observe that the appeal of the revenue is devoid of merits and deserves to be dismissed and we dismiss the same.
Order pronounced in the open court on 5.12.2012.
Sd/- Sd/-
(A.N. PAHUJA) (CHANDRA MOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 5th DECEMBER 2012
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. CIT(A) By Order
4. CIT 5. DR
Asstt. Registrar