2020 (8) TMI 468 - AT - Income Tax

Deemed Dividend u/s 2(22)(e) - CIT- A ultimately concluded that it would be personal expenses for assessee which is met by M/s PHL and therefore, the addition would have to be confirmed - HELD THAT - As rightly held by Ld. CIT(A), the provisions of Sec.2(22)(e) were not applicable since the payment was mere reimbursement of expenditure by M/s PHL. CIT(A) proceeded on wrong footing that the same would be personal expenditure and hence, disallowable completely overlooking the fact that the said expenditure has never been claimed by the assessee anywhere while computing his income. The said expenditure was booked as business expenditure by M/s PHL. Therefore, the impugned additions could not be sustained. By deleting the same, we allow the appeal.

Summary

Issues:
Appeal against addition of deemed dividend under Sec. 2(22)(e) for personal expenses reimbursed by the company.

Analysis:
1. The appeal pertains to the assessment year 2014-15 challenging the addition of ?1,21,201 as deemed dividend by the Assessing Officer, which was confirmed by the Commissioner of Income Tax Appeals (CIT(A)). The appellant argued that the expenses reimbursed were for the benefit of the company and not personal expenses. The nature of expenses indicated they were for the business of the company, as declared by the company and claimed in tax returns. The primary issue revolves around the treatment of these expenses as deemed dividend.

2. The tribunal carefully considered the submissions and the facts on record. The assessee, a resident individual, was assessed under section 143(3) and faced the addition of deemed dividend under Sec. 2(22)(e) for ?1.21 Lacs due to expenses paid by the company for the assessee's Citibank Credit Card. The company's payments were seen as advances to the assessee, leading to the addition. The core issue was whether these payments constituted deemed dividend under the said provision.

3. The assessee contended before the CIT(A) that most credit card expenses were self-paid, except for specific items related to business purposes paid by the company. These expenses included membership renewal for a professional organization, an Apple iPad for official use, and international roaming expenses. Despite the CIT(A) acknowledging that Sec. 2(22)(e) was not applicable, it wrongly concluded the expenses were personal and confirmed the addition. The tribunal disagreed, noting that the expenses were never claimed by the assessee and were treated as business expenditure by the company, rendering the addition unsustainable.

4. In the final analysis, the tribunal held that the provisions of Sec. 2(22)(e) did not apply as the payments were mere reimbursements by the company. The CIT(A) erred in treating them as personal expenses, overlooking that they were accounted for as business expenditure by the company. Since the expenses were not claimed by the assessee in his income computation, the addition was deemed unjustified. Consequently, the tribunal allowed the appeal, setting aside the addition of deemed dividend.

5. The tribunal pronounced the order on 16th March 2020, allowing the appeal and emphasizing that the expenses reimbursed by the company, which were not claimed by the assessee, could not be treated as personal expenses.