By TIOL News Service

KOLKATA, FEB 14, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether audit expenses incurred by a CA Firm on their Articled Clerks as per stipulation of ICAI, are liable to be considered while calculating the value of Fringe Benefits. NO IS THE ANSWER.

Facts of the case:

The Assessee is a partnership firm of practising Chartered Accountants. It had filed the return declaring total income of Rs.6,35,470/-, and debited a sum of Rs.5,19,238/- in its P&L A/c on account of audit expenses. On verification of said expenses, it was found by AO that they were incurred in relation to travelling & conveyance of its Audit Staff and Clerks. According to AO, such expenses were liable to be taken into account while calculating the value of Fringe Benefit and since it was not done by assessee, he required the assessee to offer its explanation. In reply, it was submitted that audit expenses were incurred for Articled Clerks, who were C.A. students receiving training and since there was no employer-employee relationship, the audit expenses did not fall under the ambit of FBT. This explanation was not found acceptable by AO, who included said audit expenses of Rs.5,19,238/- while calculating the value of Fringe Benefit and also imposed penalty of Rs.35,298/- u/s 271(1)(d). On appeal, the FAA confirmed the penalty imposed by AO by observing that the even when the assessee had incurred the expenses for conveyance, food, remuneration etc. of its auditing article clerks and staff, it had debited the same against 'audit expenses'. So the assessee had indeed furnished inaccurate particulars of accounts in its return.

Tribunal held that,

++ it is observed that audit expenses of Rs.5,19,238/- were claimed to be incurred by assessee company towards travelling and conveyance of the Articled Clerks, who were C.A. students receiving training from the assessee-firm. it was contended by the assessee during the course of assessment proceedings as well as during the course of penalty proceedings that there being no employer-employee relationship between the assessee-firm and the Articled Clerks, the audit expenses did not fall under the ambit of FBT. Although this claim of assessee was not accepted by AO on the ground 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, it is observed that nothing has been brought on record by the AO 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;

++ it is not doubted that the assessee firm has also failed to bring anything on record to support and substantiate its explanation but such failure, can justify the addition made by AO to the value of Fringe Benefit but not the imposition of penalty u/s 271(1)(d), especially when audit expenses were separately debited by assessee-firm in its P&L A/c and all the relevant details of the same were fully and truly furnished by assessee during the course of assessment proceedings before the AO. Therefore, this is not a case where assessee can be said to have furnished inaccurate particulars of Fringe Benefits to justify the imposition of penalty.

(See 2018-TIOL-248-ITAT-KOL)