CEMA ELECTRIC LIGHTING PRODUCTS INDIA PRIVATE LIMITED,CHENNAI vs. ACIT CORPORATE CIRCLE 1(2), CHENNAI

आदेश / O R D E R

PER MANJUNATHA.G, ACCOUNTANT MEMBER:

This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals)-1, Chennai, dated 29.03.2019 and

pertains to assessment year 2009-10.

appeal before the Tribunal, for which, a petition along with affidavit

explaining reasons in delay in filing of the appeal has been filed. The

Ld.Counsel for the assessee referring to petition filed by the assessee

submitted that impugned order was received by the Accountant Mr.Biju,

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who failed to communicate the same to the management of the petitioner

company. Later, on verification of outstanding demand in e-filing portal

during the month of December, 2020 for verifying the eligibility of pending

appeals for filing application under the Direct Tax Vivad Se Vishwas Act,

2020, it was understood that the demand pertaining to the subject re-

assessment u/s.115WG of the Income Tax Act, 1961 (in short “the Act")

was outstanding and further the order passed by the Ld.CIT(A) was

reflecting in the portal as received on 24.04.2019. Later, the same was

handed over to Mr.B.Ramakrishnan, for filing further appeal before the

Tribunal and in the process, there is a delay of 610 days. However, said

delay is neither intentional nor for wanton of any undue benefit. Therefore,

in the interest of substantial justice, delay may be condoned.

2.1 The Ld.DR for the Revenue opposing the petition filed by the assessee

for condonation of delay submitted that the assessee could not give any

valid reasons for not filing the appeal within the time allowed under the Act

and further, the reasons given by the assessee does not come under

reasonable cause as provided for condonation of delay. Therefore, petition

filed by the assessee should be dismissed.

2.2 We have heard both the parties and considered the contents of the

petition filed by the petitioner for condonation of delay and we find that no

litigant would derive any benefit by not filing the appeal against any

adverse order passed by an authority. Further, the assessee has explained

reasons for not filing the appeal and as per which, the person, In-charge of

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Accounts Department, did not notice order communicated by the First

Appellate Authority through e-portal. On being verified pending issues in

light of the Direct Taxes under VSVS, 2020, the assessee noticed that there

is an outstanding demand in respect of AY 2009-10, which was unnoticed

by the petitioner company. In our considered view, the reasons given by

the assessee does come under reasonable cause, because ordinarily a

litigant does not stand to benefit by lodging appeal late as held by the

Hon’ble Supreme Court in the case of Collector, Land Acquisition v.

Mst.Katiji reported in [1987] 1987 taxmann.com 1072 (SC). Therefore, we

are of the considered view that the delay in filing of the appeal needs to be

condoned for advancement of substantial justice and thus, the delay in

filing of the appeal is condoned. The appeal filed by the assessee is

admitted for adjudication.

For these grounds and such other grounds that may be adduced before or during the hearing of the appeal, it is prayed that the Hon'ble Tribunal may be pleased to delete the direction of the Commissioner of Income Tax (Appeals) towards addition of expenditure of distributor Credit Notes Scheme and/or pass such other orders as this Hon'ble Tribunal may deem fit.

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of income for the AY 2009-10 on 22.09.2009 and returned a loss of

Rs.21,27,61,541/-. The assessment has been completed u/s.143(3) of the

Income Tax Act, 1961, on 29.11.2011 and accepted the loss returned by

the assessee. During the course of assessment proceedings, it was noticed

that the assessee has debited a sum of Rs.6,18,54,176/- under the head

‘Distributors Credit Notes Scheme (in short “Distributors CRNs Scheme").

Therefore, the AO re-opened the assessment u/s.115WG of the Act, on the

ground that the income chargeable to tax, has been escaped assessment

and thus, issued notice u/s.115WG of the Act, and served on the assessee.

During the course of assessment proceedings, the AO noticed that as per

sec.115WB(2)(D) of the Act, which is a deeming provision to tax fringe

benefits extended by the assessee whether or not any such activity is

carried on with the object of deriving income from such fringe benefits

should be taxed. Since, there is an amount debited in the P & L A/c in the

nature of sales promotion expenses, the AO called upon the assessee to

explain ‘as to why’ Fringe Benefit Tax shall not be levied on expenditure

incurred towards ‘Distributors CRNs Scheme’. In response, the assessee

submitted that expenditure incurred towards ‘Distributors CRNs Scheme’

cannot be considered as deemed fringe benefits, because, any expenditure

incurred for promoting the sale of goods and services of the business of the

employer, was not to be considered as expenditure for the purpose of

Fringe Benefits Tax. The AO, however, was not convinced with the

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explanation of the assessee and according to the AO, any expenditure

incurred which is in the nature of sales promotion, does come under the

provisions of Sec.115WB(2)(D) of the Act, and thus, rejected arguments of

the assessee and computed Fringe Benefit Tax on total expenditure

incurred towards ‘Distributors CRNs Scheme’.

appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee explained

the nature of expenditure debited into P & L A/c in light of its business and

argued that said expenditure does not come under deeming provisions of

Sec.115WB(2)(D) of the Act. The Ld.CIT(A) after considering relevant

submissions of the assessee and also taken note of relevant provisions,

opined that although, the assessee claims to have incurred said expenditure

in the course of sale of goods, but failed to furnish necessary evidences,

including names and particulars of such persons, the payment made to

them, and promotional activities carried out by them. In the absence of

such particulars and evidences, the assessee claim under proviso (viii) to

sec.115WB(2)(D) of the Act, is treated as inadmissible. Therefore, taken

into account the nature of the expenses which is in the nature of sales

promotion, including publicity upheld the additions made by the AO towards

computation of Fringe Benefit Tax u/s.115WB(2)(D) of the Act. Aggrieved

by the order of the Ld.CIT(A), the assessee is in appeal before us.

scheme documents provided by the assessee company submitted that all

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claims are meant for customers mainly distributors. At the time of billing,

company will price the products at normal selling price, and once the

distributor pays the dues as per the credit terms, the company will issue

free of cost items or credit notes to the distributors and these are in the

nature of incentives paid to distributors for promoting the goods and thus,

the same cannot be considered as Fringe Benefit within the meaning of

Sec.115WB(2)(D) of the Act. In this regard, he relied upon the Circular

No.8/2005 dated 29.08.2005 issued by the CBDT.

submitted that provisions of Sec.115WB(2)(D) of the Act, is a deeming

provision, as per which, any expenditure incurred which is in the nature of

sales promotions and publicity, then, the provisions of Fringe Benefit Tax

will come into operation and the AO is bound to compute tax as per law.

In this case, the assessee could not file any evidences to prove its claim

that expenditure incurred is in the nature of free samples and credit notes

given to distributors for price difference. Therefore, he submitted that

there is no error in the reasons given by the Ld.CIT(A) to sustain the

additions made by the AO towards Fringe Benefit Tax.

record and gone through orders of the authorities below. The AO has

computed Fringe Benefit Tax in respect of payment made by the assessee

under the head ‘Distributors CRNs scheme’. According to the AO, provisions

of Sec.115WB(2)(D) of the Act, is a deeming provision where any

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expenditure in the nature of sales promotion and publicity will come under

the provisions of Fringe Benefit Tax. It was the explanation of the assessee

before the AO that expenditure incurred under the head ‘Distributors CRNs

Scheme’ as incentive paid to distributors of products in the form of free

samples and credit notes given for adjusting price difference, which is

nothing to do with any kind of benefit to the employees. Therefore,

provisions of Sec.115WB(2)(D) of the Act, cannot be invoked. We find that

the assessee has filed various evidences, including the scheme documents

issued by the assessee company for the purpose of distributors for

promotion of goods and also filed list of distributors to whom such benefit

has been given. The assessee further referring to Circular issued by the

CBDT dated 29.08.2005, claimed that expenditure incurred for the purpose

of providing incentives given to distributors for meeting sales targets does

not come u/s.115WB(2)(D) of the Act. We find that the CBDT clarifies by

way of its Circular No.8/2005 dated 29.08.2005 and explained that

incentives given to distributors for meeting sales targets are in the nature

of performance based commission and such performance based

commission is in the nature of ordinary selling cost. Therefore, expenditure

incurred for the purpose of providing incentives to distributors for meeting

sales targets does not fall within the scope of Clause (D) of sub-sec.2 of

sec. 115WB of the Act. This legal preposition is also supported by the

decision of the Hon’ble Karnataka High Court in the case of CIT v. Toyota

Kirloskar Motor (P.) Ltd., reported in [2021] 430 ITR 65, where, it has been

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held that expenditure incurred on sales promotion and holding dealers

conference does not come under the provisions of Fringe Benefit Tax,

because, said expenditure is not incurred by the assessee for the purpose

of employees or for benefit of employees. In this case, as per details

submitted by the assessee, it appears that expenditure incurred under the

head ‘Distributors CRNs Scheme’ is a type of incentive provided by the

assessee to distributors for promotion of products manufactured and sold,

which is nothing to do with benefits to employees. But, fact remains that

the assessee could not file necessary evidences including name of persons

to whom such payment is made. Further, the assessee has filed certain

details including a list of parties to whom said payment is made for the first

time before us. Therefore, we are of the considered view that the issue

needs fresh examination from the AO in light of certain evidences filed by

the assessee and thus, we set aside the order of the Ld.CIT(A) and restore

the issue back to the file of the AO and direct the AO to re-examine the

claim of the assessee in light of various evidences filed by the assessee and

decide the issue in accordance with law.

purposes.

Order pronounced on the 31st day of March, 2023, in Chennai.

Sd/- Sd/- (महावीर िसंह) (मंजूनाथा.जी) (MANJUNATHA.G) (MAHAVIR SINGH) उपा�� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER

ITA No.12/Chny/2021 :: 9 :: चे�ई/Chennai, �दनांक/Dated: 31st March, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF