‘Deemed Dividend’ provisions won’t attract for Re-Imbursement of Business Expenses of Company: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the provisions of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 would not attract in case of reimbursement of business expenditure.

The assessing officer, while completing the proceedings against the assessee for the relevant year noted that the assessee was receiving salary and commission from M/s PHL and claimed expenses as a deduction. The officer invoked the provisions of deemed dividend.

The assessee claimed that the expenses have been incurred in the course of the business of the company and have been claimed by the company in its tax returns and the same have also been allowed as business expenditure in the hands of the company.

The assessee further contended that most of the credit card expenses were paid for by the assessee himself from his own bank account except for certain items of expenses which were incurred by the assessee but paid by the said company. These expenses were incurred for and on account of the company and were on account of renewal of membership of the Entrepreneurs organization, USA, covering the case for Apple Ipad provided by the company to the assessee for official use and Matrix Card for international roaming mobile expenses during foreign travel for professional work.

On the first appeal, the CIT(Appeals) held that it would be personal expenses for assessee which is met by M/s PHL and therefore, the addition would have to be confirmed.

Before the Tribunal, the assessee challenged the order of the first appellate authority.

While granting relief to the assessee, the Tribunal held that the provisions of Section 2(22)(e) were not applicable since the payment was mere reimbursement of expenditure by M/s PHL.

“However, Ld. CIT(A) proceeded on the 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.”