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Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order of CIT(A) – 6, Hyderabad, dated 27/04/2017 for AY 2007-08.
Brief facts of the case are, the assessee filed its return of income on 02.11.2007 admitting FBT income of Rs.1,32,349/-. The assessment was originally completed u/s 143(3) on 11.12.2009 by accepting the returned income. Subsequently notice u/s 115WH dated 13/03/2014 was issued as the Assessing Officer had reasons to believe that income had escaped assessment. During the course of scrutiny proceeding it was observed by the Assessing Officer that items of expenditure like interest on loans for purchase of cars, salary paid to drivers, expenses on repairs, depreciation, maintenance expenditure and running expenses including fuel, tyres, insurance and road tax attracted the provisions u/s 115WB on which fringe benefit income came to Rs. 5,86,360/- as against the admitted fringe benefit
2 ITA No. 1266/Hyd/17 M/s Hussain Travels, Sec’bad. income at Rs. 1,32,349/- only. He rejected the submission of the assessee that the assessment u/s 143(3) was completed by rejecting the books of account, all expenses, whether claimed or not, disallowable or not, should be ignored as to have been deemed to be allowed. The AO observed that the assessee filed audited P&L A/c, hence, applicable heads under P&L accounts which were liable for fringe benefit had to be taken into consideration for FBT. He, therefore, completed the assessment by bringing the unoffered fringe benefit income of Rs. 4,36,011/- to tax.
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A).
Before the CIT(A(), the assessee submitted that the AO did not find any new material which had escaped attention while making the first assessment and the issue of notice u/s 115WH of the Act amounted to mere change of opinion by the AO and therefore the additions made by the AO should be struck down as they were bad in law. Further, it was submitted that it was incorrect on the part of the AO to issue notice u/s 115WH on the basis of documents which were very much available on file at the time of original assessment and the same amounted to change of opinion.
4.1 Even on merits, assessee submitted that the expenditure comprising of interest on loans for purchase of cars, salary paid to drivers, expenses on repairs, depreciation, maintenance expenditure, running expenses and vehicle expenses had no element of personal benefit to the employees of the assessee as the assessee was a travel agent. Such expenditure was normal expenditures which were incurred by any travel agent who was involved in providing the vehicles on hire to his customers.
3 ITA No. 1266/Hyd/17 M/s Hussain Travels, Sec’bad. 5. After considering the submissions of the assessee, the CIT(A) dismissed the ground of the assessee’s challenge to the validity of the reassessment and on merits also by confirming the order of AO, by observing as under: “5.1 Income-tax on fringe benefits is covered under Chapter XII-H of the Act and consists of section 115WG to 115WL and is an additional income-tax in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees. It is a complete code by itself. Sections 15WG and 115WH deal with fringe benefits escaping assessment and issue of notice in such cases. If the Assessing Officer feels that any fringe benefit chargeable to tax has escaped assessment for any assessment year he may reassess such income by issuing notice u/s 115WH. The Explanation to Section 115WG deems cases where fringe benefits chargeable to tax have escaped assessment and clause (c) to the Explanation include cases where assessment has been made, but the fringe benefits chargeable to tax have been under assessed. There is nothing in the section to suggest that once an assessment has been done u/s 115WE, the same cannot be reopened after expiry of 4 years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year, as provided in Section 147 of the Act. It is sufficient for the purpose, that the Assessing Officer should have reasons to believe that fringe benefit chargeable to tax had escaped assessment. That being so in this case, it is held that the Assessing Officer rightly reopened the assessment by issuing notice u/s 115WH of the Act. 05.2 Even on merits of the addition, the fact is not whether benefit has been given to a particular employee or even a group of employees. FBT was introduced precisely for the reason that assessees were, found to be giving benefits to employees in general without the value of benefit given to a particular employee being determinate. Hence, the scheme of the law was that if the prescribed type of expenditure was incurred, prescribed percentage of that was deemed to be fringe benefit and the latter had to be subjected to FBT. The assessee is not denying quantum of expenditure mentioned in clause (H) of Section 115WB(2). That being the case, he cannot shirk the liability saying that no benefit was allowed to the employees.”
4 ITA No. 1266/Hyd/17 M/s Hussain Travels, Sec’bad. 6. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: “1. The order of the learned First Appellate Authority is not correct either in law or on facts and in both. 2. In the facts and circumstances of the case, the learned CIT(A) failed to appreciate the fact that reopening of assessment by issuing notice u/s 115WH is bad in law. 3. In the facts and circumstances of the case, the Learned CIT(A) is not justified in confirming the addition of Rs.4,36,011/- to the value of taxable Fringe benefits. 4. The learned CIT(A) is not justified in not appreciating the claim of the appellant that the expenditure in question did not result in any benefit to the employees and is exclusively incurred for its business purpose only. 5. The learned CIT (A), failed to appreciate the fact that since the books of accounts are rejected in assessment u/s 143(3) of IT Act, and the income is determined on estimate basis, there cannot be levy of fringe benefit tax u/s 115WB of IT Act. 6. The appellant craves leave to add, amend or alter any of the grounds during the course of hearing.” 6.1 Ground Nos. 1 & 6 are general in nature, hence, need no adjudication.
Before us, ld. AR reiterated the facts as submitted before ld. CIT(A) and relied on the Circular No. 8/2005, dated 29/08/2005 which is relating to explanatory notes on the provisions relating to fringe benefit tax. He also relied on the decision of the coordinate bench of ITAT, Ahmedabad in the case of ACIT Vs. M/s Sahajanand Medical Technologies in ITA No. 153/Ahd.2013, order dated 17/01/2017.
On the other hand, ld. DR besides relying on the orders of revenue authorities, also relied on the decision in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC).
5 ITA No. 1266/Hyd/17 M/s Hussain Travels, Sec’bad.
Considered the rival submissions and perused the material on record. With regard to ground No. 2, the assessment was reopened after 4 years, but, before 6 years. Assessee objects that the reopening was bad in law, as the AO reopened the assessment because of audit objection and he has not found any new evidence in order to reopen. It amounts to change of opinion. We notice that the Chapter – XII – H is self-code, which governs the tax on fringe benefit and it is an additional income tax. The provisions of section 115WH, which deals with the issue of escaped assessment. As per section 115WH(4), notice can be issued after expiry of 4 years with the approval of CCIT or PCIT. In the given case, the notices were issued with the approvals, it shows that the notices were proper and there is element of escapement of income. The information for escapement need not be found by AO, the information can be brought to the notice of AO by any agency including audit parties. In our view, the notices are proper and within the provisions of section 115WG & H. Accordingly, ground no. 2 is dismissed.
9.1 With regard to ground No. 5, assessee contended that the books were rejected and income was estimated u/s 143(3), the fringe benefit tax u/s 115WB cannot be levied. As stated above, the fringe benefit tax is additional tax and even where the income is estimated, AO can levy FBT with the information available on record. Therefore, the contention of the assessee is rejected.
9.2 With regard to ground Nos. 3 & 4, these grounds are interconnected, the AO has reopened assessment based on the audit objection and during the reassessment proceedings, noticed that in the P&L account, the items of expenditure like interest on loan for purchase of cars, salary paid to drivers, expenses on repairs, depreciation, maintenance expenditure and running expenses
6 ITA No. 1266/Hyd/17 M/s Hussain Travels, Sec’bad. including fuel, tyres, insurance and road tax attract FBT under the provisions of 115W of the Act. We notice that the nature of the business of the assessee is travel agency. This type of business will have expenditures like interest on loan for purchase of cars, salary to drives etc. These types of expenditure will not come under FBT unless it is exclusively given for the benefit of employees. The FBT will be attracted only on the benefits extended to employees like concession on interest on loan, allowances for the benefit of employees. These should be evaluated based on the nature of expenditure. In our view, AO has generalized the expenditure and not considered the nature of the assessee business. The interest on loan to purchase of cars, salary paid to drivers in the travel business will not come under FBT. Therefore, we remit this issue back to the AO to redo the assessment based on the strict interpretation of FBT provisions and considering the nature of assessee’s business after giving proper opportunity of being heard to the assessee. Accordingly, ground Nos. 3 & 4 are treated as allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes. Pronounced in the open Court on 9th August, 2019.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 9th August, 2019 kv
7 ITA No. 1266/Hyd/17 M/s Hussain Travels, Sec’bad.
Copy to:- 1) M/s Hussain Travels, C/o K. Parthasarathy & Co., Advocate & Tax Consultant, 1st Floor, Sowbhagya Avenue, Street – 1, Ashok Nagar, Hyderabad – 500 020. 2) ITO, Ward – 10(1), IT Towers, AC Guards, Hyderabad – 500 004. 3) CIT(A) – 6 Hyderabad. 4) Pr. CIT - 6, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File