Tribunal rules no tax on credit card expenses reimbursed by employer.

The Tribunal held that the addition of Rs. 1,24,574 as 10% of the overall expenses incurred by the assessee through credit card on behalf of the employer was not justified. The Tribunal found that the expenses were included in the FBT return and reimbursed by the employer, concluding that there was no element of perquisite to be taxed in the hands of the assessee employee. As a result, the Tribunal directed the Assessing Officer to delete the entire addition made in this regard, allowing the appeal of the assessee.

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Issues:
Whether the addition of Rs. 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 Rs. 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 Rs. 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 Rs. 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.

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