INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA

I.T.A No.1062/Kol/2012           Assessment Year: 2009-10
Assistant Commissioner of Income-tax (Appellant) vs M/s. Jai Raj Ispat Ltd (Respondent)
Date of Order : 10-11-2015

ORDER

Per Shri Mahavir Singh, JM:
This appeal by revenue is arising out of order of CIT(A)-1, Kolkata in Appeal No.845/CIT(A)-I/C-3/11-12 dated 23.04.2012. Assessment was framed by Addl. CIT, Range-3, Kolkata u/s. 143(3)/11 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 20.12.2011.

2. The two inter-connected issues in this appeal of revenue is as regards to the order of CIT(A) deleting the addition made by AO on account of expenses incurred by assessee company on medical treatment of Managing Director Shri S. K. Goenka and also travelling expenses of Managing Director (MD) and other Directors in connection with treatment of Managing Director abroad. For this, revenue has raised following three grounds:

“1. That on the facts and circumstances of the case the Ld. CIT(A)erred in deleting the addition of Rs.1,09,43,181/- made on account of 'Medical treatment of Sri S.K. Goenka, M.D of the company' without appreciating the fact that it was a gratuitous payment and cannot be regarded as commercial expediency.

2. That the CIT(A) has erred in deleting the addition of Rs.1,09,43,181/-without taking into account the fact that the reimbursement of medical expenses was not a contractual obligation of the assessee company and therefore, it was purely personal expenses of MD which is not allowable U/s. 37 of the Act, 1961.

3. That the CIT(A) has erred in deleting the addition of Rs.11,42,835/- without appreciating the fact that said amount was incurred on account of travelling expenses of the MD and other directors in connection with treatment of MD in abroad and therefore, the same were personal in nature having no nexus with the business.”

3. Briefly stated facts are that the assessee claimed deduction in respect of expenses incurred on medical treatment of its Managing Director Shri S. K. Goenka, who was sent on medical treatment to USA amounting to Rs.1,09,43,181/- and also inter-connected expenses of foreign travel of Managing Director and other Directors of the company amounting to Rs.11,42,835/-. During the course of assessment proceedings, the AO required the assessee to explain as to why these expenses be not treated as personal in nature and be not disallowed? The AO after taking explanation of the assessee rejected the claim of the assessee and disallowed medical treatment expenses as well as foreign travel expenses. Aggrieved, assessee preferred appeal before CIT(A) who allowed the claim of assessee in respect to medical treatment expenses of the Managing Director and also foreign travel expenses of Managing Director and other Directors by observing as under:

“The Ld. A/R also pointed out that since in relation to the expenses so incurred by the assessee for the treatment of Sri Goenka, a liability was found u/s. 115WE for Fringe Benefit Tax and that an assessment has been made on 20th December, 2011 by the AO. A copy of the order u/s. 115 WE (3) of the Income Tax Act has been submitted. It is seen that the assessee had submitted its return of FBT on 24.09.2009 for the AY 2009-10 showing value of Fringe Benefit at Rs.36,03,476/-. Assessment was made and Fringe Benefit Tax was calculated at Rs.12,60,003/-. It has been contended by the Ld. A/R that because the assessee's liability arose for Fringe Benefit Tax, it was accordingly shown in the return and that assessment has been made also. It is submitted that the A.O. has not disputed the purpose relating to the travelling made by the Mg. Director and that once the A.O. has assessed these expenses under FBT, it cannot be said that these are not for the purpose of business of the assessee.

I have taken note of all the facts & circumstances relating to the issue involved. It is fully established that Sri Goenka, the Mg. Director has been instrumental in bringing the assessee company to the present status by his hard work and farsightedness. The data which is available from the audited accounts for various years & noted in the write up do show that the company has been proceeding in a very sound and profitable position and that is entirely due to the whole time and attention put by Sri Goenka. Though there are other Directors in the assessee company but they are stated to have no hand in the day to day business of the assessee. The expenditure incurred by the assessee is not in the nature of capital expenditure. It also cannot be said to be personal expenses of the assessee. In the circumstances of the case, it is, in fact, expenditure laid out or expended wholly and exclusively for the purpose of the business.

I also take note of the fact that the Auditors having found that expenses relating to Sri Goenka for his treatment reported the fact that it was subject to Fringe Benefit Tax. Accordingly, liability to Fringe Benefit Tax was worked out and return was submitted which has been duly accepted and order u/s 115 WE (3) has been passed by the A.O. as noted above.

In the facts and circumstances, as analyzed above, I am of the considered opinion that the expenditure claimed by the assessee for the treatment of Sri Goenka, its Mg. Director who was suffering from serious cancer ailment are fully allowable as the same have been incurred for the purpose of the business. There is no reason to hold that these are his personal expenses by incurring such expenses, the assessee company has survived and it will be totally unfair to proceed to hold that these are not expenses incurred by the assessee wholly and exclusively for the purpose of its business.

 Further, even otherwise in view of the fact that in the assessment framed u/s. 115WE(3) of the Fringe Benefit Tax in which the assessee worked out Fringe Benefit tax liability taking into consideration the Workman & Staff Welfare Expenses which included the amount of medical treatment of the Mg. Director Sri Goenka as well as Foreign Travel Expenses, the addition made in the order passed u/s. 143(3) while determining the total income is not tenable.

Upon consideration of the facts & circumstances in entirety, I allow the appeal of the assessee and direct the AO to delete the additions of Rs.1,09,43,181/- and Rs.11,42,835/-.”

Aggrieved, now assessee is in appeal before the Tribunal.

4. We have heard rival submissions and gone through facts and circumstances of the case. It was claimed before us that MD of the assessee company was ill and was diagnosed with disease called as malignant growth (Cancer) for which he was taken to USA for treatment. According to assessee, since he was MD of the assessee company since past several years and has been instrumental in giving company unprecedented rise in its turnover and has brought good profits and reputation. Keeping in view these facts, the Board of Directors passed a resolution for sending him to USA for treatment at the expenses of the assessee company. Ld. Counsel for the assessee before us explained the increase in turnover profits with facts and figures that the receipts from Sales and other Services during the AY 2006-07, which are reflected at Rs.12,336.78 lacs, it has gone up to Rs.18,918.81 lacs in the AY 2009-10. Whereas Reserve & Surplus of the appellant were Rs.1,548.05 lacs in AY 2006-07, it is reflected at Rs.3,189.16 lacs in the Ay 2009-10. Similar is the position with regard to profit before tax which was reflected at Rs.161.33 lacs in AY 2006-07, it is Rs.290.74 lacs in the AY 2009-10. In view of the above, Ld. Counsel for the assessee stated that the expenses in relation to medical treatment of the MD of the assessee company and related travel expenses were subjected to fringe benefit tax u/s. 115WE of the Act and assessment has been made in respect to fringe benefit tax by the AO on 20.12.2011 taxing these expenses in the hands of the assessee company as perquisites. Ld. Counsel for the assessee also stated that in view of the provisions of section 37 of the Act read with the position in Company Law the expenses incurred on medical treatment of the MD of the assessee company are wholly and exclusively for the purpose of business. He argued that one has to take note of and look to this matter in the present context of business exigencies and there is no reason not to consider the expenses incurred as pertaining to its business and for this potentialities, present as well as future. He explained that the assessee is a juridical entity and it is surviving in the fields of its business due to good guidance of its MD Shri S. K. Goenka, who is prima facie a matter reckoned with. On the other hand, the Ld. Sr. DR relied on the assessment order.

5. We find from the above facts and circumstances of the case that the MD of the assessee company was suffered from Cancer who was sent on medical treatment to USA and assessee company has incurred the medical treatment expenses as well as foreign travel expenses of the Managing Director and other directors also. We find that the Board of Directors of the assessee company has passed a resolution to meet the entire expenditure of medical expenses including travel expenses by the assessee company. We find from the facts of the case that, since he was MD of the assessee company since past several years and has been instrumental in giving company unprecedented rise in its turnover and has brought good profits and reputation, in the interest of assessee’s business needs the medical treatment expenses were worn. Keeping in view these facts, the Board of Directors passed a resolution for sending him to USA for treatment at the expenses of the assessee company. We find from the facts of the case that there is increase in turnover profits with facts and figures that the receipts from Sales and other Services during the AY 2006-07, which are reflected at Rs.12,336.78 lacs, and it has gone up to Rs.18,918.81 lacs in the AY 2009-10. Whereas Reserve & Surplus of the appellant were Rs.1,548.05 lacs in AY 2006-07, it is reflected at Rs.3,189.16 lacs in the Ay 2009-10. Similar is the position with regard to profit before tax which was reflected  at Rs.161.33 lacs in AY 2006-07, it is Rs.290.74 lacs in the AY 2009-10. Further, the expenses in relation to medical treatment of the MD of the assessee company and related travel expenses were subjected to fringe benefit tax u/s. 115WE of the Act and assessment has been made in respect to fringe benefit tax by the AO on 20.12.2011 taxing these expenses in the hands of the assessee company as perquisites. Once these are made subject matter of fringe benefit tax u/s. 115WE of the Act and taxes were paid by the assessee company under fringe benefit tax, it cannot be taxed doubly by making disallowance of these expenses. Accordingly, we confirm the order of CIT(A) allowing the claim of assessee. Accordingly, this inter-connected issue of revenue’s appeal is dismissed.

6. In the result, the appeal of revenue is dismissed.

7. Order is pronounced in the open court on 10.11.2015

(Waseem Ahmed)        (Mahavir Singh)
Accountant Member     Judicial Member