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

The assessee, filed its return of fringe benefits for the Assessment Year 2007-08, declaring a total value of fringe benefits at Nil. However, the tax audit report under section 44AB reported the value of fringe benefits at Rs.2,78,55,648/-. Upon noticing that fringe benefits chargeable to tax had escaped assessment, the AO reopened the assessment under section 115WG and completed the reassessment under section 115WE(3) read with section 115WG, determining the value of fringe benefits at Rs.3,68,94,408/-. This included an addition of Rs.90,38,760/- for expenses related to "use of health club and similar facilities," which were assessed at 50% instead of the 20% claimed by the assessee.

The assessee filed an appeal against the AO’s order, contending that the expenses of Rs.3,01,29,201/- were incorrectly classified as "use of health club and similar facilities" and were instead related to guest house maintenance, security guard salaries, gardening, and cleaning expenses. The CIT(A) called for the Remand Report from the AO. The CIT(A), after considering the submissions and remand report, found that the AO had failed to establish that these expenses were for health club facilities. The CIT(A) accepted the assessee’s claim that the correct valuation rate was 20%, not 50%, and directed the AO to reassess the fringe benefits accordingly.

Aggrieved by the order of CIT(A), the Revenue is in appeal before us with following grounds of appeal:

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

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.

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.

We have heard the rival submissions and perused the material on record, including the assessment order, CIT(A)’s order, and the remand report. We note that the remand report was prepared by the AO during the appellate proceedings as directed by the CIT(A). The purpose of the remand was to verify the nature of the expenses amounting to Rs.3,01,29,201/-, which the AO had initially classified as expenses related to "use of health club and ITA No.3367/Ahd/2014 AY 2007-08 Asst.Year: 2007-08

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 ITA No.3367/Ahd/2014 AY 2007-08 Asst.Year: 2007-08

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

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.

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.

In the result, the appeal filed by the Revenue is dismissed.

"%थ$ / The Respondent. 3. संबंिधत आयकर आयु& / Concerned CIT 4. आयकर आयु& अपील ( ) / The CIT(A)-I, Baroda 5. िवभागीय "ितिनिध आयकर अपीलीय अिधकरण राजोकट/DR,ITAT, Ahmedabad, , , 6. गाड" फाईल / Guard file.