2018 (11) TMI 259 - AT - Income Tax

Addition on Fringe Benefits on account of medical reimbursement expense - value of FBT on account of medical expenses for treatment in the approved hospital - penalty imposed by the AO u/s 271(1)(d) - Held that - Following the decision rendered by the coordinate Bench of the Tribunal in Vijaya Bank 2011 (8) TMI 751 - ITAT BANGALORE which is squarely applicable to the facts and circumstances of the case, we are of the considered view that medical reimbursement expenses is prerequisites in the hands of employees and is taxable as such, even if medical expenses are in excess of ₹ 15,000/- and as such cannot be subjected to FBT because once the item as prerequisites is exempted in the hands of individual employee, the same cannot be subjected as FBT. CIT (A) has rightly deleted the addition made by the AO in AY 2006-07 to the value of FBT on account of medical reimbursement expenses. However, the CIT A) has erred in deleting the addition in AYs 2007-08 & 2008-09 on account of medical reimbursement expenses to the extent of 50% only. For AYs 2007-08 and 2008-09 also entire addition is liable to be deleted. So, ground against the Revenue. Addition of 50% in the value of FBT on account of medical expenses for treatment in approved hospitals - Held that - We allow 85% of the amount incurred by the assessee on account of medical expenses for treatment in the approved hospitals for the reason that possibility of 15% of such cases being overlooked cannot be ruled out for AYs 2007-08 & 2008-09. Even otherwise, the ld. Representative for the assessee has shown his inability to produce old record for verifications. Addition to the value of FBT on account of maintenance expenses of township - no such amount is being taxed as prerequisites in the hands of employees and treated the same as deemed FBT u/s 115WB(2)(E) - Held that - When the assessee is responsible for upkeep and maintenance of the townships, the same cannot be said to have erected for the welfare of the employees rather it is a necessity for the assessee to run the business in the remote areas as well as to enable the employees to serve in the remote places. So, we are of the considered view that in AY 2006-07, the ld. CIT (A) has rightly deleted the addition made in the value of FBT on account of maintenance expenses of townships. But ld. CIT (A) in AYs 2007-08 & 2008-09 has erred in confirming the addition on this account, hence ordered to be deleted. Penalty u/s 271(1)(c) - Held that - Revenue has failed to make out the case of concealment of particulars of fringe benefits or furnishing of inaccurate particulars of such fringe benefits and secondly, addition made by the AO and confirmed by the ld. CIT (A) has been deleted by the Tribunal, provisions contained u/s 271(1)(d) of the Act are not attracted, hence penalty levied by the AO is not sustainable and the ld. CIT (A) has rightly deleted the same.

Issues Involved:
1. Addition to Fringe Benefits on account of medical reimbursement expenses.
2. Addition to Fringe Benefits on account of maintenance expenses of the township.
3. Addition to Fringe Benefits on account of medical expenses for treatment in hospitals.
4. Penalty under section 271(1)(d) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition to Fringe Benefits on Account of Medical Reimbursement Expenses:
The Revenue challenged the deletion of additions made by the AO to the value of Fringe Benefits on account of medical reimbursement expenses. The CIT (A) had deleted these additions on the grounds that medical reimbursement expenses are taxable in the hands of employees and thus not includible for Fringe Benefit Tax (FBT). The Tribunal upheld this view, relying on the precedent set by the coordinate Bench in the case of Vijaya Bank vs. JCIT, which held that medical reimbursement expenses, even if exceeding ?15,000, are prerequisites taxable in the hands of employees and cannot be subjected to FBT. Consequently, the Tribunal determined that the CIT (A) rightly deleted the additions for AY 2006-07 and extended this deletion to AYs 2007-08 and 2008-09 as well.

2. Addition to Fringe Benefits on Account of Maintenance Expenses of the Township:
The AO had added the maintenance expenses of the township to the value of FBT, treating them as deemed fringe benefits. The CIT (A) deleted this addition for AY 2006-07 but confirmed it for AYs 2007-08 and 2008-09. The Tribunal found that the townships were maintained by the assessee as a necessity for running its business in remote areas, not as a benefit to the employees. Thus, these expenses could not be treated as FBT. The Tribunal upheld the deletion for AY 2006-07 and extended it to AYs 2007-08 and 2008-09, determining the issue in favor of the assessee.

3. Addition to Fringe Benefits on Account of Medical Expenses for Treatment in Hospitals:
The AO added medical expenses for treatment in approved hospitals to the value of FBT, arguing that the assessee failed to provide evidence that such expenses were taxed in the hands of employees. The CIT (A) allowed 50% of these expenses. The Tribunal, noting that the assessee is a government undertaking with stringent audit protocols, allowed 85% of the medical expenses, considering the possibility of some cases being overlooked. Thus, the Tribunal partly upheld the CIT (A)'s decision but increased the allowable percentage of expenses.

4. Penalty under Section 271(1)(d) of the Income-tax Act, 1961:
The AO imposed penalties under section 271(1)(d) for AYs 2006-07 and 2007-08, arguing that the assessee failed to provide details for medical reimbursement and township expenses. The CIT (A) deleted these penalties, and the Tribunal upheld this deletion. The Tribunal reasoned that the penalties were not sustainable as the primary additions were not upheld, and the assessee had a reasonable basis for its claims. Moreover, the Tribunal referenced the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that mere incorrect claims do not amount to furnishing inaccurate particulars.

Conclusion:
The Tribunal dismissed the Revenue's appeals concerning the additions to FBT and penalties, while partly allowing the assessee's appeals by increasing the allowable percentage of medical expenses for treatment in hospitals. The decision emphasized that the expenses in question were prerequisites taxable in the hands of employees and thus not subject to FBT.

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