ITAT Deletes Penalty against CA Firm though It failed to prove that Expenses incurred for travelling of Articled Clerks is not Fringe Benefit [Read Order]

In a significant ruling, the Kolkata bench of the ITAT observed that audit expenses incurred by a Firm of Chartered Accountants (CA) in respect of traveling and conveyance of the Articled Clerks are subject to Fringe Benefits Tax as the Firm failed to substantiate their claim. However, the division bench deleted penalty under section 271(1)(d) of the Income Tax Act imposed on the Assessee-Firm since there was no such event that the Firm furnished inaccurate particulars of Fringe Benefits.

The assessee, in the instant case, is a partnership firm of practicing Chartered Accountants. For the year under consideration, the firm made payments in respect of audit expenses of Rs.5,19,238/- towards traveling and conveyance of the Articled Clerks, who were C.A. students receiving training from the assessee-firm. Assessing Officer held that the same is liable to be taxed as Fringe Benefits under section 115WA(1) of the Income Tax Act.

Assessee maintained that there is no employee-employer relationship between the assessee-firm and the Articled Clerks, the audit expenses did not fall under the ambit of FBT. However, the AO rejected the claim by stating that it was specifically submitted by the assessee earlier that the audit expenses were incurred by its Audit staff and Audit Clerks without any reference to the Articled Clerks undergoing training with it.

On the second appeal, the bench observed that nothing has been brought on record by the Assessing Officer to establish that the claim of the assessee was wrong and the audit expenses in question were incurred on the Audit staff, which did not include Articled Clerks undergoing training with the assessee-firm as per the stipulation of the ICAI.

“No doubt, the assessee-firm also failed to bring anything on record to support and substantiate its explanation but such failure, in our opinion, can justify the addition made by the Assessing Officer to the value of Fringe Benefit but not the imposition of penalty under section 271(1)(d), especially when the audit expenses were separately debited by the assessee-firm in its Profit & Loss Account and all the relevant details of the same were fully and truly furnished by the assessee during the course of assessment proceedings before the Assessing Officer,” the bench said.

Allowing the appeal, the bench further held that it is not a case where the assessee can be said to have furnished inaccurate particulars of Fringe Benefits to justify the imposition of penalty under section 271(1)(d).

To Read the full text of the Order CLICK HERE