2013 (4) TMI 793 - AT - Income Tax

Tribunal rules on expenses & Fringe Benefit Tax impact under Income Tax Act.

The Tribunal held that if expenses were subjected to Fringe Benefit Tax (FBT), no disallowance could be made under the Income Tax Act. The issues ... Disallowance of expenditure - expenditure subject to FBT - Held that:- As in the case of Hansraj Mathuradas [2012 (10) TMI 300 - ITAT, MUMBAI] relying upon CBDT Circular No.8/2005 dated 29/8/2005 it was held that once FBT is levied on expenses incurred, it follows that the same are treated as fringe benefit provided by the assessee as employer to its employees and the same have to be appropriately allowed as expenditure incurred wholly and exclusively by the assessee for the purpose of its business. No contrary decision has been brought to our notice in this regard. Therefore, respectfully following the aforementioned decision we hold that if the aforementioned expenditure were subjected to FBT, then disallowance cannot be made. However, to verify that whether or not these expenditure were subjected to FBT, we restore the issues raised in these appeals to the file of AO with a direction to verify the contention of the assessee that whether or not impugned expenditure were subjected to FBT. If those expenditure were subjected to FBT then no disallowance can be made and the claim of the assessee should be accepted in its entirety. Issues:1. Disallowance of expenses under telephone and postage heads for assessment years 2006-07 and 2007-08.2. Disallowance of foreign traveling expenses for assessment years 2006-07 and 2007-08.3. Applicability of Fringe Benefit Tax (FBT) on telephone and foreign traveling expenses.4. Challenge to the disallowances made by the Assessing Officer (AO) and upheld by the CIT(A).5. Interpretation of the law regarding disallowance of expenses subjected to FBT.6. Decision on restoring the issues to the AO for verification.Issue 1 - Disallowance of Telephone and Postage Expenses:For both assessment years, disallowance of expenses under telephone and postage heads was challenged. The AO disallowed a percentage of these expenses, which was reduced by the CIT(A). The appellant contended that these expenses were incurred for business purposes and were covered under FBT. The Tribunal referred to a previous decision and held that if expenses were subjected to FBT, no disallowance could be made. The issues were restored to the AO for verification.Issue 2 - Disallowance of Foreign Traveling Expenses:The AO disallowed a percentage of foreign traveling expenses for both assessment years. The CIT(A) upheld the disallowance despite arguments that these expenses were covered under FBT. The Tribunal referred to a previous decision and held that if expenses were subjected to FBT, no disallowance could be made. The issues were restored to the AO for verification.Issue 3 - Applicability of Fringe Benefit Tax (FBT):The appellant argued that both telephone and foreign traveling expenses were covered under FBT, but the CIT(A) rejected this contention. The Tribunal referred to a previous decision and held that if expenses were subjected to FBT, no disallowance could be made. The issues were restored to the AO for verification.Issue 4 - Challenge to Disallowances:The appellant challenged the disallowances made by the AO and upheld by the CIT(A) for both telephone/postage and foreign traveling expenses. The Tribunal referred to a previous decision and held that if expenses were subjected to FBT, no disallowance could be made. The issues were restored to the AO for verification.Issue 5 - Interpretation of Law on FBT Expenses:The Tribunal interpreted the law regarding expenses subjected to FBT, citing a previous decision that stated such expenses cannot be disallowed under Section 37(1) of the Income Tax Act if FBT was levied. The Tribunal directed the AO to verify whether the disputed expenses were subjected to FBT before making any disallowances.Issue 6 - Restoration of Issues to AO:The Tribunal decided to restore the issues of disallowances to the AO for verification of whether the expenses were subjected to FBT. If confirmed, no disallowance could be made, and the claims of the assessee should be accepted. The appeals filed by the assessee were treated as allowed for statistical purposes.