THE ACIT, (OSD), RANGE-1,, AHMEDABAD vs. CADILA HEALTH CARE LTD.,, AHMEDABAD

आदेश / O R D E R

PER PRADIP KUMAR KEDIA, AM: As per the captioned appeal, the Revenue is aggrieved by the order of the Commissioner of Income Tax(Appeals)-VI, Ahmedabad [CIT(A) in short] dated 09/12/2013 for the Assessment Year (AY) 2006-07 in granting relief against penalty of Rs.2.84 crores levied by the

ITA No.611/Ahd/2014 ACIT vs. Cadila Health Care Ltd. Asst.Year – 2006-07 - 2 - Assessing Officer (AO) under s.271(1)(d) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

ITA No.611/Ahd/2014 ACIT vs. Cadila Health Care Ltd. Asst.Year – 2006-07 - 3 - provided true and full disclosure of facts and its supporting legal contentions as per ‘notes’ forming part of its fringe benefits tax return for Ay 2006-07. Thus, there was no suppression of any particulars of facts per se. Consequently, the case of the assessee is squarely covered by the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt.Ltd. reported at 322 ITR 158 (SC). The Ld.AR for the assessee also adverted our attention to the ‘notes’ annexed to the fringe benefits tax return showing proper disclosure of the facts and thereafter adverted our attention to Note No.5 with reference to which it was submitted that the impugned amount of FBT of Rs.2.85 crores was deposited in a separate bank account keeping in view the directions of the Hon’ble Gujarat High Court in an interim order. The Ld.AR accordingly submitted that in view of these glaring facts, the CIT(A) was right in deleting the penalty imposed by AO under s.271(1)(d) of the Act and accordingly no interference is called for.

ITA No.611/Ahd/2014 ACIT vs. Cadila Health Care Ltd. Asst.Year – 2006-07 - 4 - of non-inclusion of certain expenditure for the purpose of FBT liability as per provisions of section 115WB of the Act.

5.1. Before we proceed further, it will be apt to reproduce the relevant order of the CIT(A).

3.2. In the order levying penalty u/s.271(l)(d), AO observed that in the assessment order u/s,115WE(3) dtd. 26.12.2008 addition of Rs.8,45,98,925/- was made to the fringe benefit; CIT(Appeals) confirmed the addition and therefore penalty was being levied on the assessee for furnishing inaccurate particulars of fringe benefit.

3.3. The contentions of the Id. A.R. are that A.O. did not find out even a single inaccurate particular; appellant had taken a categorical stand in the notes forming part of its return that the expenditure in dispute was not incurred on the employees and therefore it did not attract levy of fringe benefit tax; in view of the decisions relied on, any expenditure incurred by an employer in the course of business or profession, which is not in consideration for employment cannot be considered as fringe benefit; the Hon'ble jurisdictional Gujarat High Court stayed the legality and validity of the Circular No.8/2005 dtd. 29.08.2005 directing the assessees to deposit the disputed fringe benefit tax in a separate bank account to be opened in the employer's name with a Scheduled Bank till further orders; in the statement of computation of taxable fringe benefits accompanying the return appellant conspicuously made the claim that the disputed expenditure was not chargeable to fringe benefit tax; mere rejection of the appellant's claim does not attract the penal provisions and therefore levy of impugned penalty is not in accordance with law.

3.4. I have given my careful consideration to the facts of the matter. In the case of DCIT Vs. Kotak Mahindra Old Mutual Life Insurance Ltd., 134 ITD 388 (Mum) (2011), it was held that Section 115WB(2) applies

ITA No.611/Ahd/2014 ACIT vs. Cadila Health Care Ltd. Asst.Year – 2006-07 - 5 - only when the expenditure is for employment. In the case of Desai Brothers Ltd. Vs. Addl.CIT 32 taxmann.com (2013)(Pune), it was held that "the interpretation sought to be advanced by the Revenue is not borne out of the statutory provisions. Ostensibly, the clarification issued by the CBDT vide Question No. 14 in Circular No. 8 of 2005 (supra) seeks to enlarge the scope of levy of FBT, which is not supported by the language of the statute. The Hon 'ble Supreme Court in the case of Kerala Financial Corpn. V. CIT (1994) 210 ITR 129/ 75 Taxman 573 (SC) has clearly opined that the Circulars issued by CBDT cannot override the provisions of the Act. In any case, it is quite well-settled that an executive instruction/circular cannot create any additional liability on the assessee. Secondly it is also to be appreciated that the stand of the Revenue is also not in consonance with the legislative intent. The import and intent of introducing Chapter XL1-H was to tax such benefits which are collectively enjoyed by the employees and cannot be attributed to any individual employee. Such benefits escape taxation as perquisite in the hands of the individual employees as they are not attributable to any individual employee. Therefore, such benefits were sought to be taxed in the hands of the concerned employer. Though the speech of the Hon'ble Finance Minister may not be a decisive test, so however, it is indeed a relevant and contemporaneous exposition of the legislative intent and can be relied upon, as propounded by the Hon'ble Supreme Court in the case of K.P, Varghese v. ITO [1981] 131 ITR 597/7 Taxman 131. Considered in that light too, we find that the interpretation sought to be made out by the Revenue with regard to the meaning of the expression 'fringe benefits' for the purpose of section 115WB(2) of the Act is quite misplaced. Considering the aforesaid, we therefore do not subscribe to the interpretation sought-to be placed by the revenue on section 115WB(2) of the Act and instead, hold that the expenses prescribed therein are liable to be considered as fringe benefits only to the extent the same are incurred in consideration for employment. To the same effect is also the view of our co-ordinate Bench in the case of Dy. CIT v. Kotak Mahindra Old Mutual Life Insurance Ltd. [2012] 134 ITD 388 / [2011] 16 taxmann.com 395 (Mum) ". As contended by the Id. A.R. the operation of CBDT's Circular No.8/2005 dtd. 29.08.2005 has been stayed by the

ITA No.611/Ahd/2014 ACIT vs. Cadila Health Care Ltd. Asst.Year – 2006-07 - 6 - jurisdictional Gujarat High Court with certain directions to the assesses.

3.5. Leaving aside the applicability of the provisions of Section 115WB(2) to the disputed expenditure incurred by the appellant, it is to be noted that while filing the return in the computation of fringe benefit appellant had conspicuously highlighted that disputed expenditure was not being offered to fringe benefit tax. It cannot be said that appellant had concealed fringe benefits or furnished inaccurate particulars of fringe benefits within the meaning of Section 271(d). Mere rejection of a claim does not attract penal provisions. I am of the considered view that levy of penalty is not in accordance with law. Impugned penalty order is cancelled. These grounds of appeal are allowed.’

5.2. We straightway notice the ostensible fact that the assessee has come out with complete disclosure of disputed items of expenditure not included for the purpose of determination of fringe benefits tax liability in the return of income. Thus, the bonafides of the action of the assessee cannot be tainted with any doubt. Noticeably, the assessee secured substantial relief from the Coordinate Bench of ITAT in quantum proceedings albeit reversed by the Hon’ble Gujarat High Court. Clearly, thus, the issue involved was not entirely free of controversy. We also note the attendant fact that the assessee has ear-marked the quantum of fringe benefit tax in the separate escrow account pending resolution of the controversy. Thus, there are sufficient indicators existing in the case that the assessee has acted on bonafide considerations. Needless to say a finding in the quantum proceedings that a particular expenditure is susceptible to provisions of FBT cannot automatically be adopted for the

ITA No.611/Ahd/2014 ACIT vs. Cadila Health Care Ltd. Asst.Year – 2006-07 - 7 - purposes of s.271(1)(d) of the Act. The assessee has successfully discharged the initial onus placed on it for rebut5ting presumption against it. Therefore, we are unable to see any error in the action of the CIT(A) in deleting the penalty imposed by the AO under s.271(1)(d) of the Act.

Sd/- Sd/- (आर.पी.तोलानी) (�द�प कुमार के�डया) उपा�य� लेखा सद�य ( R.P. TOLANI ) ( PRADIP KUMAR KEDIA ) VICE PRESIDENT ACCOUNTANT MEMBER

Ahmedabad; Dated 31/ 05 /2017 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-VI, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad