THE DCIT, CIRCLE-1(1)(1), BARODA vs. GUJARAT STATE ELECTRICITY CORPORATION LTD.,, BARODA

Assessee by : Shri M.K. Patel, Advocate Revenue by : Shri Prithviraj Meena, CIT-DR & Shri Regnesh Das, Sr.DR सुनवाई की तारीख/Date of Hearing : 19/09/2024 घोषणा की तारीख /Date of Pronouncement: 26/09/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:

This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-I, Baroda (hereinafter referred to as “CIT(A)”) dated 12.09.2014 for the Assessment Year (AY) 2007-08 arising out of an order passed by the Assessing Office (hereinafter referred to as “AO”) u/s 115WE(3)/115WG of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

DCIT vs. Gujarat State Electricity Corporation Ltd. Asst.Year: 2007-08 Facts of the Case:

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in directing the Assessing Officer to value the fringe benefits @ 20%, in respect of expenditure as "use of health club", without appreciating the fact that in the tax DCIT vs. Gujarat State Electricity Corporation Ltd. Asst.Year: 2007-08 3 audit report the auditors has clearly mentioned and certified that this expenditure incurred for the use of health club and similar facilities.

2. On the facts and in the circumstances of the case and in law, the Id. CIT(Appeals) has erred in directing the Assessing Officer to value the fringe benefits @ 20%, without appreciating the fact that the assessee company produced totally different ledger account, therefore, it was not acceptable and the assessing officer has rightly made the addition by adopting value of fringe Benefit @ 50% against 20% as adopted by the assessee

3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal: It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored.

On the grounds of appeal: 4. During the course of the hearing before us, the Departmental Representative (DR) relied on the order of AO and pointed out that the assessee did not submit complete evidence during the assessment proceedings. On the other hand the Authorised Representative (AR) relied on the order of the CIT(A) and reiterated that the CIT(A) had rightly appreciated the nature of the expenses based on the remand report. The AR argued that the CIT(A) correctly concluded that the rate of 20% was applicable and that the AO’s addition was unjustified.

5.1. The assessee contended that these expenses were not related to health club use but were mistakenly grouped under that head in the tax audit report. The AO, in the remand report, acknowledged that the assessee had provided documentation indicating that the expenses were related to guest house operations, colony maintenance, and security. However, the AO noted that the assessee did not provide complete books of accounts, bills, and vouchers to substantiate the nature of each expense during the remand proceedings, although summary statements were submitted. The AO maintained that DCIT vs. Gujarat State Electricity Corporation Ltd. Asst.Year: 2007-08 while some expenses appeared unrelated to health club use, the classification in the tax audit report still indicated otherwise. The AO did not find conclusive evidence in the remand report that all the expenses were improperly categorized as health club facilities.

5.2. The assessee informed the CIT(A) that while voluminous data existed, it was not practically possible to submit every single document and voucher during the appellate proceedings. However, the assessee reiterated that the statements and evidence provided were sufficient to demonstrate that the expenses did not fall within the category of health club and similar facilities. The CIT(A) reviewed the findings of the AO as stated in the remand report and noted that the AO did not provide any evidence showing that the expenses of Rs.3,01,29,201/- were incurred for health club and similar facilities. The expenses were related to salaries of guest house employees, security guards, garden maintenance, and colony cleaning, which were not connected to health club use. The AO admitted that the assessee had submitted detailed documentation during the remand proceedings, including a certified statement from the Internal Auditors verifying the nature of these expenses after examining the books of accounts and other evidence. Since there was no proof linking the expenses to health club facilities, the CIT(A) concluded that the correct valuation rate for these fringe benefits was 20%, not 50%. For the sake of clarity, we reproduce the relevant para from the order of CIT(A):- “7.1 The findings of the AO as given in the remand report have been considered. The fact is that nowhere in the remand report it is mentioned by the AO that any part of amount of Rs. 3,01,29,201/- was incurred by the appellant for Health Club and similar facilities. As can be seen from the above, the expenses are incurred for salary of employees working in Guest House, for salary of Security Guards, for maintenance of garden and for cleaning of colony. As admitted by the AO that during the course DCIT vs. Gujarat State Electricity Corporation Ltd. Asst.Year: 2007-08 of remand proceedings the appellant had submitted the documents showing the details of nature of Fringe Benefits, amount and account heads of relevant expenditure incurred in respect of various units etc. However, none of the documents as submitted by the appellant are identified by the AO which are related to use of Health Club and similar facilities. Moreover, a statement. duly certified by the Internal Auditors of the company has been submitted by the appellant to the AO during the course of remand proceedings. This statement was issued by the Internal Auditors after verifying the books of accounts and other evidences. Thus, in absence of any evidences it cannot be said that the expenses of Rs. 3,01,29,201/- or any part of such expenses of-Rs. 3,01,29,201/- have ever been incurred by the appellant for use of Health Club and similar facilities. In view of these facts in my opinion, the expenses of Rs. 3,01,29,201/- is subject to rate of 20% and not the rate of 50% for valuing the fringe benefits. In view of this the AO is directed to value the fringe benefits in respect of above expenditure of Rs. 3,01,29,201/- by applying the rate of 20%. In result, this ground of appeal of the appellant is allowed.

8. The third ground of appeal of the appellant is that the learned Assessing Officer erred in law and on facts and has initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 for the alleged concealment and/or furnishing of inaccurate particulars of income. This ground of appeal of the appellant being premature cannot be entertained at this stage and therefore the same is dismissed.”

5.3. The DR’s argument that the assessee failed to submit evidence during the assessment proceedings does not hold merit, as the CIT(A) appropriately utilized the remand proceedings to allow the assessee to present sufficient evidence, including a certificate from the Internal Auditor. This certificate, along with supporting documents, verified that the expenses were related to guest house operations, security, and maintenance, not health club facilities. The AO’s assessment lacked conclusive evidence to support the application of a 50% valuation rate. Therefore, the CIT(A) was correct in directing the application of the 20% rate for valuing the fringe benefits.

5.4. In view of the above findings, we find no infirmity in the order of the CIT(A). The Revenue’s grounds of appeal lack merit and do not warrant any interference.

DCIT vs. Gujarat State Electricity Corporation Ltd. Asst.Year: 2007-08