2025 (1) TMI 1289 - AT - Income Tax

Addition of credit card payments being personal in nature u/s. 37(1) - Addition in hands of the Director as perquisite u/s. 2(24)(iv) - HELD THAT - As undisputed fact that the company had agreed before the DDIT Investigation and disallowed the credit card payments being personal in nature u/s. 37(1) of the Act while filing the return of income of the company for the assessment years under consideration. Once the company did not claim the credit card payments being personal in nature as business expenditure while computing the business income (due to disallowance made by the company) the aforesaid credit card payment relating to personal in nature cannot be taxed again in the hands of the assessee-director as income u/s. 2(24)(iv) of the Act. AO himself has observed that during post search proceedings the assessee suo motto submitted before the DDIT Investigation and disclosed the details of official expenditure and personal expenses of Directors related to the payment of credit card bills in the hands of the company. Since the company did not claim the personal expenditure while computing the business income the assessee did not receive any additional benefit from the company. AO is therefore totally unjustified in making the addition in the hands of the assessee being the personal expenditure of the director paid by the company which was disallowed in the hands of the company and the company paid taxes there on since it amounts to double taxation. Judgements relied on by the CIT(A) are distinguishable on facts as in those cases the company did not disallow the expenses u/s. 37(1) of the Act in the hands of the company. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this judgment is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the addition made by the Assessing Officer (AO) under Section 2(24)(iv) of the Income Tax Act, 1961, despite the fact that the company, in which the assessee is a director, had already disallowed the credit card payments as personal expenses under Section 37(1) of the Act. This issue was raised in a group of appeals concerning multiple assessment years from 2019-20 to 2022-23.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework primarily involves Section 2(24)(iv) of the Income Tax Act, which pertains to the inclusion of certain benefits or perquisites in the income of a director. Section 37(1) deals with the disallowance of personal expenses in the computation of business income. The appellants argued that the provisions of Sections 2(24)(iv), 17(2)(iv), and 28(iv) are not applicable because the expenses were already disallowed and taxed in the company's hands.

Precedents cited include decisions from the Chennai Bench of the ITAT in the case of ACIT vs. Shri Ali Asgar Shamsuddin and the Mumbai Bench in the case of Mrs. Bakhtawar B. Dubash vs. DCIT, which support the principle that an amount cannot be taxed twice.

Court's Interpretation and Reasoning

The Court found that the addition under Section 2(24)(iv) in the hands of the assessee-director amounts to double taxation. The reasoning was based on the fact that the company had already disallowed the personal expenses under Section 37(1) and paid the applicable taxes. Therefore, taxing the same amount in the hands of the director would contravene the principle against double taxation.

Key Evidence and Findings

Evidence from the search and seizure operation indicated that personal expenses of the director were booked as welfare expenses in the company's books. The AO reopened the assessments based on this evidence. However, the company had not claimed these expenses as deductions in its income computation, thereby nullifying the basis for taxing them again as perquisites in the director's hands.

Application of Law to Facts

The Court applied the principle that an amount cannot be taxed twice. Since the company had already disallowed the expenses and paid taxes on them, the same expenses could not be taxed again as a benefit or perquisite to the director under Section 2(24)(iv).

Treatment of Competing Arguments

The appellants argued that taxing the amount in the director's hands would result in double taxation, supported by previous tribunal decisions. The Department contended that the addition was correctly made as a perquisite. The Court favored the appellants' argument, emphasizing the avoidance of double taxation.

Conclusions

The Court concluded that the addition made by the AO and confirmed by the CIT(A) was incorrect, as it resulted in double taxation. The provisions of Sections 2(24)(iv), 17(2)(iv), and 28(iv) were deemed inapplicable since the company had already disallowed the expenses.

SIGNIFICANT HOLDINGS

The Court held that the addition under Section 2(24)(iv) in the hands of the director amounts to double taxation because the company had already disallowed the expenses under Section 37(1). The Court reiterated the principle that an amount cannot be taxed twice, citing previous tribunal decisions that supported this view.

Core Principles Established

The judgment reinforced the principle against double taxation, emphasizing that once an expense is disallowed and taxed in the company's hands, it cannot be taxed again as a perquisite in the director's hands.

Final Determinations on Each Issue

The Tribunal ordered the deletion of the impugned addition made by the AO and confirmed by the CIT(A), allowing the appeals filed by the assessees. The findings applied to all related appeals, as the facts were identical across cases.

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