2014 (6) TMI 443 - AT - Income Tax

Disallowance made u/s 43B(f) of the Act - Provision for leave encashment Held that - The Tribunal being a quasi judicial authority has to decide the appeal only on the basis of the provisions of section 43B(f) of the Act - the provisions of section 43B(f) cannot be ignored as in the case of Exide Industries Limited And Another Versus Union Of India And Others 2007 (6) TMI 175 - CALCUTTA High Court it was stayed - the claim of the assessee could be allowed only if it is actually paid on the due date for filing the return of income - It is not the case of the assessee that the amount claimed as leave encashment was paid before the due date for filing the return of income - it remains to be paid, the CIT(A) has rightly confirmed the disallowance made by the AO Decided against Assessee. Disallowance u/s 14A of the Act Held that - The assessee specifically claimed before the Tribunal for the AY 2006-07 that the surplus funds were available for making investment the Tribunal examined the issue and remanded back the matter to the file of the CIT(A) thus, the matter is required to be remitted back to the CIT(A) Decided in favour of Assessee. Fringe benefit tax u/s 115WB of the Act Held that - When the telephone is installed in the business premises of the assessee for the business purpose it cannot be considered as a privilege, service, facility or amenity to the employee. It is a facility for the purpose of carrying on the business of the assessee - that is a business expenditure - the expenditure incurred by the assessee in respect of telephone installed in the office premises for the purposes of carrying out the business activity cannot be considered as a fringe benefit u/s 115WB of the Act - the matter needs to be verified, whether the telephone installed in the premises of business - If the telephone is installed at the residence of the employee, then it shall be taken as fringe benefit - The assessee has to file the details of expenditure with regard to the telephones which were installed for the benefit of the employee and in respect of the telephones which were installed in the office premises thus, the matter is remitted back to the AO Decided in favour of Assessee. Exclusion of depreciation Value of car for computation of fringe benefits Held that - The AO disallowed the claim of the assessee only on the ground that there is no distinction made by the assessee in respect of expenditure made on the cars meant for employees as well as the cars meant for test drive the assessee is maintaining cars for test drive and for employees it is for the assessee to segregate the expenditure made on each vehicle the matter is required to be remitted back to the AO for adjudication Decided in favour of Assessee.

Summary

Issues Involved:
1. Disallowance of provision for leave encashment under Section 43B(f) of the Income Tax Act.
2. Disallowance under Section 14A of the Income Tax Act.
3. Fringe benefit tax under Section 115WB of the Income Tax Act regarding telephone expenses.
4. Fringe benefit tax on demo cars.

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Leave Encashment under Section 43B(f):
The first ground of appeal concerns the disallowance of the provision for leave encashment under Section 43B(f) of the Income Tax Act. The assessee claimed Rs.5,68,688 towards this provision, but the assessing officer disallowed it since it was not paid by the date of filing the return. The assessee relied on the Supreme Court judgment in Bharat Earth Movers Ltd vs CIT, arguing that the provision is an allowable expenditure. However, the respondent highlighted that Section 43B(f), introduced by Finance Act, 2001, mandates actual payment for such deductions. The Tribunal noted that the Calcutta High Court had struck down Section 43B(f) as arbitrary, but the Supreme Court stayed this judgment. Consequently, the Tribunal upheld the disallowance, stating that the provision remains in the statute and deductions can only be allowed on actual payment.

2. Disallowance under Section 14A:
The second issue pertains to the disallowance of Rs.68,99,900 under Section 14A. The assessee argued that investments were made in subsidiary and associate companies and that the borrowed funds were not used for these investments. The Tribunal previously remanded a similar issue for the assessment year 2006-07 for re-examination by the assessing officer. Given the identical facts, the Tribunal set aside the CIT(A)'s order and remanded the issue back for reconsideration, emphasizing the need to assess the availability of the assessee's own funds and the commercial expediency of the investments.

3. Fringe Benefit Tax under Section 115WB - Telephone Expenses:
The third issue involves the fringe benefit tax on telephone expenses. The assessee contended that telephones installed in the office are for business purposes and should not be treated as fringe benefits. The Tribunal referred to Section 115WB(2)(J), which includes the use of telephones other than leased lines as fringe benefits. However, it opined that telephones installed in business premises for business purposes do not constitute a fringe benefit. The matter was remanded to the assessing officer to verify the installation locations and purposes of the telephones, distinguishing between business and employee benefits.

4. Fringe Benefit Tax on Demo Cars:
The final issue concerns the fringe benefit tax on demo cars. The assessee used demo cars for test drives by potential customers and claimed depreciation on them. The respondent argued that no distinction was made between cars for employees and demo cars. The Tribunal noted that cars used for test drives should be treated as business vehicles, while those for employees' benefit should be considered fringe benefits. The matter was remanded to the assessing officer to segregate the expenses and determine the correct tax treatment.

Conclusion:
The Tribunal partially allowed the appeal in ITA No.751/Coch/2013 and allowed the appeals in ITA Nos. 752 and 753/Coch/2013 for statistical purposes. The orders were pronounced on June 6, 2014.