2018 (1) TMI 75 - AT - Income Tax

Addition being 10% of overall expenses incurred by the assessee through credit card on behalf of the employer - Held that - We find that the expenditure incurred by the assessee employee in his credit card during foreign travel visits, for and on behalf of the company M/s Govind Steel Co. Ltd, is not disputed by the revenue. In fact there is a specific finding in this regard in the order of the ld CIT-A. It is not in dispute that the assessee employee had not claimed any expenditure as deduction which were incurred by him through credit card during his foreign travel. He incurred expenses through credit cards and the same were reimbursed to him by the company M/s Govind Steel Co. Ltd. Moreover, the said expenses were included in the FBT return and hence by placing reliance on the Circular No. 8/2005 dated 29.8.2005, there cannot be any element of perquisite to be taxed in the hands of the assessee employee. In any case, if at all, there is no doubt in the mind of the revenue with regard to the subject mentioned expenses, the revenue could examine the same only in the hands of the company M/s Govind Steel Co. Ltd and not in the hands of the assessee employee. We find that both the authorities below had grossly erred in making some addition towards the same on an estimated basis. Hence we have no hesitation in directing the ld AO to delete the entire addition made in this regard. - Decided in favour of assessee.

Summary

Issues:
Whether the addition of ?1,24,574, being 10% of overall expenses incurred by the assessee through credit card on behalf of the employer, was justified.

Analysis:
The appeal arose from the order of the Commissioner of Income Tax (Appeals) concerning the addition of expenses incurred by the assessee through credit cards on behalf of the employer. The Assessing Officer (AO) alleged that these expenditures were personal in nature and added 50% of the total expenses as perquisite in the hands of the assessee. The assessee contended that the employer had paid the necessary Fringe Benefit Tax (FBT) for the relevant year, submitting details of FBT payments made. The Commissioner, after examining the submissions, restricted the addition to 10% of the expenses, noting that the AO's rationale for the 50% disallowance was not adequately supported by findings. The Commissioner observed that only certain items were covered by FBT payments, reducing the amount subject to addition to ?1,24,574.

The Commissioner referenced judicial citations and Circular No. 8/2005 to support the argument that FBT paid by the employer should exempt the employee from being taxed on the same expenses. The Commissioner found strength in the appellant's argument that he should not be taxed as FBT had been paid by the employer, but noted that certain expenses were not covered by FBT payments. Consequently, the disallowance was restricted to 10% of the overall expenses, amounting to ?1,24,574, covering all items of expenses whether covered by FBT payments or not.

The Tribunal, upon hearing the arguments, found that the entire expenditure incurred through credit cards by the assessee for the employer had been included in the FBT return filed by the company. The Tribunal noted that the revenue did not dispute the expenses incurred by the assessee on behalf of the company and that the expenses were reimbursed by the employer. Relying on Circular No. 8/2005, the Tribunal concluded that there was no element of perquisite to be taxed in the hands of the assessee employee. The Tribunal directed the AO to delete the entire addition made, as there was no basis for estimating the addition. Consequently, the appeal of the assessee was allowed.

In conclusion, the Tribunal held that the addition of ?1,24,574 as 10% of the overall expenses incurred by the assessee through credit card on behalf of the employer was not justified, given that the expenses were included in the FBT return and reimbursed by the employer. The Tribunal directed the Assessing Officer to delete the entire addition made in this regard.