Delhi ITAT Deletes Rs 11.32 Lakh Addition On Payments Towards Credit Card Dues After Source Explained

The New Delhi Income Tax Appellate Tribunal (ITAT) has recently held that payments towards credit card dues cannot be added as unexplained expenditure under Section 69C of the Income Tax Act when the assessee is able to satisfactorily explain the source of such payments with supporting evidence.

Section 69C of the Income Tax Act, 1961, deals with unexplained expenditure. If an assessee incurs expenses for which they cannot provide a satisfactory explanation regarding the source of funds to the Assessing Officer, that amount is deemed to be the assessee's income for that financial year.

A single bench of Judicial Member CN Prasad, was dealing with the appeal filed by an individual assessee for Assessment Year 2023–24, where the Assessing Officer had treated credit card payments of Rs 11.32 lakh as unexplained expenditure, invoking Sections 69C read with 115BBE of the Income Tax Act.

The taxpayer had explained that the credit card was used by friends and relatives for their personal expenses and that the amounts were subsequently reimbursed to her in cash. His counsel also submitted that only Rs 9.52 lakh was paid in cash towards the credit card dues and not the entire Rs 11.32 lakh treated by the Assessing Officer.

During the assessment proceedings, only partial details could be furnished as the assessee was abroad, leading the Assessing Officer to make the addition.

The NFAC-backed Commissioner (Appeals) upheld the addition, holding that repayment of credit card dues in cash and use of the card by third parties was not permissible and that the source remained unproven.

Allowing the appeal, the Tribunal noted that the assessee had placed affidavits on record from friends and relatives who had used the credit card. These affidavits clearly confirmed the usage of the card, the reimbursement of amounts in cash, and were supported by PAN and Aadhaar details establishing the identity of the persons concerned.

The Tribunal observed that the evidence demonstrated that the credit card was used by the assessee's friends, mother, and father, and that the corresponding cash received from them constituted a valid and explained source for repayment of the credit card dues.

The bench stated that,

"I have perused the evidences furnished by the assessee in the form of affidavits from the friends identifying themselves by furnishing PAN cards and Aadhar Cards, stating that the credit card was used by friends and relatives for their personal expenses and they have returned money in cash to the assessee."

"All these goes to show that the credit card was used by friends, mother and father of the assessee and friends have given money in cash for credit card payments and in my view the assessee has proved the sources of credit card payments and accordingly the AO is directed to delete the addition u/s.69C of the Act", added the Tribunal.

Holding that the assessee had satisfactorily discharged the burden of explaining the source of expenditure, the Tribunal directed deletion of the addition made under Section 69C.

Consequently, the appeal was allowed in favour of the taxpayer.

For Appellant: Advocate, Shruti Gupta, Neeraj Paswan and Shefali Kishore

For Respondent: Sr. DR, Manoj Kumar