No FBT on Dealer-Oriented Sales Promotion Spend; ITAT Deletes Addition

Apar Lubricant Ltd. (since merged with Apar Industries Ltd.) was reopened for AY 2009-10 under Section 147, wherein the Assessing Officer treated part of the advertising, publicity, and sales promotion expenditure of Rs. 1.41 crore as liable to Fringe Benefit Tax (FBT). The expenditure related to dealer incentives, promotional items, advertising agency payments, exhibition expenses, and sales commissions, all incurred on dealers, distributors, customers, and third parties.

The AO treated Rs. 1.08 crore as taxable fringe benefits under Sections 115WA and 115WB. The addition was confirmed by the CIT(A), leading to the appeal before the ITAT.

Issue Before Tribunal: Whether advertising, publicity, and sales promotion expenses incurred on dealers, distributors, customers, and other third parties can be treated as taxable fringe benefits under Sections 115WA and 115WB of the Income-tax Act.

ITAT’s Decision: The ITAT allowed the appeal, holding that Fringe Benefit Tax can arise only when an employer provides a benefit to its employees. The advertising, publicity, and sales promotion expenses were incurred on dealers, distributors, advertising agencies, and other third parties, with no evidence of any benefit to employees. The deeming provisions of Section 115WB(2) could not be invoked in isolation from this basic requirement.

The Tribunal also noted that several items of expenditure, such as media advertisements, exhibition expenses, and promotional articles, were expressly excluded from FBT under the proviso to Section 115WB(2)(D). Therefore, the addition of Rs. 1.08 crore towards FBT was deleted in full, and the issue of reopening was left open as academic.

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