ITAT Deletes Addition on Credit Card Payments After Accepting Explanation of Source

The ITAT Mumbai wiped out the addition made for credit card payments after deciding that Prateek Rahul Mehta had clearly explained where the money came from, with all the right paperwork to back him up.

Fact of the Case

Mehta did not file his income tax return for the year 2013–14. The tax office picked up, through AIR info, that he’d paid a total of Rs 50.51 lakh through his credit card. The Assessing Officer took a closer look and decided that Rs 16,61,087 of that amount counted as unexplained spending under Section 69C, so he reopened the assessment using Section 148.

Mehta responded by saying that he wasn’t the only one using the card; his relatives and some partnership firms he was involved with had used it too. According to him, they paid their share of the bills directly. To prove it, he handed over confirmations, bank statements, tax returns, affidavits, and financial statements for all the people involved. But the Assessing Officer and the CIT(A) weren’t convinced and stuck with their addition, so Mehta took his case to the ITAT.

Issue

The real question before the Tribunal was simple: When the taxpayer gave solid evidence for where the credit card payments came from, was it right to call Rs 16,61,087 of it unexplained under Section 69C?

Tribunal Observation

The Tribunal thought it through and noticed that the credit card was used not just by Mehta, but by his relatives and business connections as well. They’d actually made their payments straight to the card. The evidence Mehta gave confirmations, bank statements, tax returns, affidavits was more than enough. The Tribunal said that after all this was provided and checked out, Mehta didn’t have to do anything more. As far as they were concerned, he’d satisfactorily explained everything.

Judgement

The ITAT tossed out the CIT(A)’s order. They told the tax office to delete the addition of Rs 16,61,087 under Section 69C, sided with Mehta, and said the credit card payments were properly explained.