AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 1545
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....account of advertising, publicity and sales promotion expenses under section 115WA of the Income-tax Act, 1961. The assessee has, inter alia, challenged both the validity of reopening as well as the addition made on merits. However, in the course of hearing, it was fairly urged that since the issue can be decided purely on merits in favour of the assessee, the validity of reopening under section 147 may be kept open and treated as academic. 2. Briefly stated, the assessee is engaged in the business of marketing lubricants and allied products. For the relevant year, it had debited an amount of Rs. 1,41,01,455/- under the head "Advertising, publicity and sales promotion expenses" in its profit and loss account. During the original assessme....
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....,41,01,455/-, certain items such as sales meet expenses had already been considered for FBT in the return of income; several items were expressly covered by the proviso to section 115WB(2)(D) and hence excluded; and only the balance was sought to be subjected to FBT by the Assessing Officer. The assessee had also placed on record sample documentary evidences from M/s Savita Enterprises, to whom payments were made for supply of promotional articles, and had categorically demonstrated that the said party was an independent third party and not an employee of the assessee. 5. The learned counsel for the assessee submitted that the entire foundation of FBT rests on the concept of a "fringe benefit" being a consideration for employment. It was....
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....e nature of consideration for employment, and that fringe benefit cannot arise when expenditure is incurred on persons who are not employees. It was further urged that the Hon'ble Delhi High Court in T&T Motors Ltd. v. ACIT [2012] 341 ITR 332 has held that the cost of accessories or promotional items supplied to customers as part of a sales package cannot be treated as sales promotion or publicity expenses liable to FBT, as the customer has paid the sale consideration and no separate or additional charge is levied for such accessories. The assessee also placed reliance on the judgments in Smith Kline & French (India) Ltd. v. CIT [1992] 193 ITR 582, Tuticorin Alkali Chemicals and Fertilizers Ltd., and several other coordinate bench decisions....
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....hird parties, namely dealers, distributors, advertising agencies, customers, and vendors such as M/s Savita Enterprises. The Assessing Officer himself has not alleged, either in the original assessment proceedings or in the reassessment proceedings, that M/s Savita Enterprises or any other recipient of the payments was an employee of the assessee. On the contrary, it stands accepted that the payments were made to an outsider party for supply of promotional articles and other marketing-related services. Once this foundational fact is accepted, the inevitable conclusion follows that the expenditure cannot be regarded as a consideration for employment, nor can it be deemed as a fringe benefit within the meaning of section 115WB. 11. Further....
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....g from these decisions is that FBT is not intended to tax every business expenditure, but only those expenditures which, in substance and reality, represent a benefit to employees. 13. In the present case, not only is there an absence of any material to suggest that any employee benefit is involved, but the documentary evidences placed on record by the assessee amply establish that the expenditure has been incurred in the normal course of marketing business, for promoting sales, enhancing goodwill, and incentivizing dealers and distributors. The Assessing Officer's observation that sufficient documentary evidence was not furnished is belied by the record itself, as the assessee had placed on record ledgers, sample invoices, notes on the ....