2013 (4) TMI 788 - AT - Income Tax

Disallowance of freight and transportation expense and building repair and maintenance - addition made by the Assessing Officer on account of sale incentives - Value of fringe benefit on account of sale incentive being 20% - applicability of 115WB(2)(D)

Issues Involved:

1. Condonation of delay in filing appeals.
2. Disallowance of Rs. 50,000/- out of freight and transportation expenses.
3. Disallowance of Rs. 50,000/- out of building repair and maintenance expenses.
4. Addition made by the Assessing Officer on account of sales incentives for Fringe Benefit Tax (FBT) purposes.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeals:

The appeals were filed late by 35 days. The assessee filed a condonation application stating that the delay occurred because the First Appellate Authority's order remained unattended by their advocates. Upon realizing the mistake, the appeal was filed immediately, albeit delayed by 35 days. After hearing the Departmental Representative and considering the interest of justice, the delay for both appeals was condoned.

2. Disallowance of Rs. 50,000/- out of Freight and Transportation Expenses:

The assessee, engaged in the manufacture and trading of jute goods and synthetic yarn, declared a total income of Rs. 2,43,64,263/-. The Assessing Officer (AO) noticed that the assessee claimed Rs. 43,04,925/- on account of freight and transportation, with many expenses based on self-made vouchers. Due to the unverifiable nature of these expenses, the AO disallowed Rs. 50,000/-.

3. Disallowance of Rs. 50,000/- out of Building Repair and Maintenance Expenses:

Similarly, the AO noted that the assessee claimed Rs. 22,43,295/- for building repair and maintenance, with expenses not fully verifiable. Consequently, the AO disallowed Rs. 50,000/-.

4. Addition on Account of Sales Incentives for FBT:

During the assessment proceedings, the AO examined expenses on which Fringe Benefit Tax (FBT) was payable. The AO noticed that the assessee did not declare FBT on sales incentives amounting to Rs. 4,75,285/-. The AO added Rs. 95,257/- (20% of Rs. 4,75,285/-) to the total value of FBT, considering sales incentives as part of sales promotion under Section 115WB(2)(D).

Judgment Analysis:

Condonation of Delay:

The Tribunal condoned the delay in filing the appeals, emphasizing the interest of justice.

Disallowance of Rs. 50,000/- out of Freight and Transportation Expenses:

The Tribunal referred to Section 145 of the Income Tax Act, which mandates that income must be computed according to the method of accounting regularly employed by the assessee unless the AO finds the accounts incorrect or incomplete. The Tribunal found that the AO failed to demonstrate any defects in the assessee's books or method of accounting. Hence, the ad hoc addition of Rs. 50,000/- was deemed unwarranted, and the disallowance was deleted.

Disallowance of Rs. 50,000/- out of Building Repair and Maintenance Expenses:

Applying the same reasoning as above, the Tribunal found no justification for the ad hoc disallowance of Rs. 50,000/- for building repair and maintenance expenses. The disallowance was deleted.

Addition on Account of Sales Incentives for FBT:

The Tribunal examined Section 115WB(2) of the Income Tax Act, which includes sales promotion expenses under the deeming provision for FBT. The Tribunal noted that the assessee failed to produce relevant vouchers to substantiate that sales incentives were not covered under Section 115WB(2)(D). Consequently, the Tribunal upheld the CIT(A)'s decision, confirming the addition of Rs. 95,257/- for FBT purposes.

Conclusion:

- ITA No. 146/A/2011: The appeal was allowed, and the disallowances of Rs. 50,000/- each for freight and transportation expenses and building repair and maintenance expenses were deleted.
- ITA No. 147/A/2011: The appeal was dismissed, and the addition of Rs. 95,257/- on account of sales incentives for FBT purposes was upheld.

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