2018 (2) TMI 436 - AT - Income Tax

Computation of fringe benefit tax - Assessee pleaded that when a particular item of expenditure has been disallowed by the Ld. AO as not incurred wholly and exclusively for the purpose of business u/s 37 of the Act, then the same should not be subjected to levy of fringe benefit tax - Held that - We find that the Ld. AO has fairly pleaded only for exclusion of the amount disallowed in the sum of ₹ 7,91,147/- from the computation of fringe benefit tax which, in our considered opinion, is just and fair. We find that CBDT Circular No. 8/2005 dated 29.08.2005 had in response to Frequently Asked Questionnaire (FAQ) has clarified the same. We find that the similar exclusion from FBT has been done properly by the Ld. AO in the assessment proceedings of assessment year 2007-08. From the facts narrated we find that this sum of disallowance of expenditure had been subjected to FBT. We are inclined to accept the alternative plea of the Ld. AR that the disallowed is to be excluded from the computation of FBT as worked out in the aforesaid table. Hence, we direct the ld. AO to re-compute the FBT computation as directed above. Accordingly, grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues:
Appeal against disallowance of business expenditure for FBT computation.

Analysis:
1. The appeal arose from the disallowance of ?7,91,147 by the AO, representing one-third of the total expenditure of ?23,73,442, as not incurred for business purposes. The AO found that the expenses were not wholly and exclusively for business, lacking proper justification and beneficiary details.

2. The appellant argued that the disallowed amount was already included in the FBT return, thus should be allowed as a business expenditure under section 37 of the Act. Additionally, the appellant sought exclusion of the disallowed sum from FBT computation, citing CBDT Circular No. 8/2005 for support.

3. The AR contended that expenses disallowed under section 37 should not be subjected to FBT, emphasizing the exclusion of disallowed expenditure from FBT computation in line with the CBDT circular. The DR, however, supported the CIT(A)'s order.

4. The Tribunal observed that the AO's plea for excluding the disallowed amount from FBT computation was just and fair. Referring to the CBDT Circular, the Tribunal directed the AO to re-compute FBT, excluding the disallowed sum. This decision aligned with the exclusion done in the assessment for the previous year, ensuring consistency and fairness in the treatment of disallowed expenses for FBT purposes.

5. Consequently, the Tribunal allowed the appeal for statistical purposes, directing the AO to re-calculate the FBT as per the exclusion of the disallowed amount. This decision provided relief to the appellant by ensuring that the disallowed expenditure was not subjected to FBT, in line with the CBDT Circular and past assessment practices.

This detailed analysis highlights the grounds of appeal, arguments presented, relevant legal provisions, and the Tribunal's decision, ensuring a comprehensive understanding of the judgment.