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July 4, 2023

ITAT removes the addition of credit card fees incurred by the director (Appellant) for the Company

ITAT removes the addition of credit card fees incurred by the director (Appellant) for the Company

Fact and issue of the case

Feeling aggrieved by appeal-order dated 27.01.2023passed by learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC)[“Ld. CIT(A)”], which in turn arises out of assessment-order dated 29.09.2021 passed by ACIT,4(1), Indore. [“Ld. AO”] u/s 143(3) read with section 254 of the Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2012-13, the assessee has filed this appeal.

By means of various grounds raised in appeal memo, the assessee is basically challenging the addition of Rs. 5,22,614/- made by the AO in respect of payments said to have been made through credit card.

This is 2nd round of litigation in the matter. Briefly stated the facts are such the assessee filed return of income of relevant A.Y. 2012-13 on 09.2012 declaring a total income of Rs. 12,29,580/-. The case was selected under scrutiny and the AO completed assessment u/s 143(3) vide order dated 31.03.2015 after making certain additions including a disallowance of Rs. 5,22,614/- in respect of payments said to have been made through credit card. The assessee contested this disallowance in first appeal but the Ld. CIT(A) did not grant any relief vide order dated 12.07.2017. The assessee then carried the matter in further appeal to ITAT, Indore Bench in I.T.A. No. 616/Ind/ 2017 whereupon the ITAT remanded the issue back to AO vide para No. 10 of order dated 26.10.2018. In pursuance of ITAT’s order, the AO passed a newer assessment order dated 29.09.2021 but, however, he repeated the same addition. Aggrieved again, the assessee carried matter in appeal to CIT(A) but the CIT(A) decided appeal vide order dated 27.01.2023 upholding the AO’s order. Now, the assessee has again come in this appeal before us; hence this is 2nd round.

Ld. AR representing the assessee submitted that the issue involved is very small and straightforward but it needs to be understood holistically and judiciously. Referring to Para No. 4 of original assessment order dated 31.03.2015, Ld. AR submitted that the AO found from CASS/ Information Report of department that the assessee had made payments of Rs. 4,16,039/- and of Rs. 1,06,575/-, aggregating to Rs. 5,22,614/-,by utilizing credit card. When the AO confronted the assessee qua those payments, the assessee filed a detailed reply on 25.03.2015 which is reproduced in the very same Para No.4 of assessment-order. The crux of reply was such that the assessee was a director of M/s. Esspal International Pvt.Ltd., Bhilwara [“Company”] and in connection with business of Company, the assessee had to incur expenditure. Therefore, the Company provided a credit card No. 428479000005590 to assessee. Since the expenses belonged to Company, a total payment of Rs. 4,10,448/- was made by Company and the same was recorded in Company’s books. A statement of transactions of credit card was also submitted to AO which revealed total payment of Rs. 4,10,448/-. However, there was a slight difference between 4,16,039/- reflected in the Information Report and Rs. 4,10,448/- paid by Company but it was not possible to reconcile the difference in absence of complete details in Information Report. Further, it was also not possible to explain the consolidated sum of Rs. 1,06,575/- appearing in Information Report since no details of transactions were revealed by Information Report. However, the AO disregarded assessee’s submissions and made disallowance in the hands of assessee on the footing that the expenses were incurred for personal use and not for business.

When the matter travelled upto ITAT, Indore Bench in ITA No. 616/Ind/2017, the ITAT remanded the issue back to AO. During proceeding before AO, the assessee re-iterated original submission and also filed a Ledger A/ c of Credit Card extracted from the books of Company, copy placed at Page No. 27 to 31 of Paper-Book. Drawing our attention to same, Ld. AR demonstrated that the said Ledger A/c of Credit Card clearly shows the date-wise / voucher-wise details of the payment of Rs. 4,10,448/- recorded in the books of Company. Thus, Ld. AR submitted, the assessee has filed requisite details to Ld. AO but still the AO has not understood assessee’s case that the Credit Card really belonged to Company, the expenditure was recorded in the books of Company and the Company has claimed expenditure as deduction; the assessee has neither incurred expenditure nor claimed any kind of deduction. The credit card payments were appearing in assessee’s name in Information Report for the precise reason that the card was provided in the name of assessee. Ld. AR submitted that when the assessee has not claimed any deduction of expenditure, how the revenue authorities can make disallowance in the hands of assessee? According to Ld. AR, even if the expenses are said to be personal expenses, the disallowance would be attracted in the hands of Company and not assessee. With these precise submissions, Ld. AR prayed to delete the disallowance made by revenue authorities since it is 2nd round of litigation and the authorities are not able to understand the assessee’s contention or explanation, which is very simple, correct and factual. Ld. AR made a humble prayer to decide this case on the basis of evidences placed in Paper-Book as narrated above so that matter comes to an end.

DR supported the orders of lower-authorities.

Observation of the court

We have considered rival submissions of both sides and perused the order of lower authorities as also the documents placed in Paper-Book. After a careful consideration, we find sufficient weightage in the submission of Ld. AR that a total payment of Rs. 4,10,448/- was made by Company and recorded by Company in its books of account which is very much evident from copy of Ledger A/c supplied by Company as detailed in foregoing Therefore, the expenditure really belonged to Company and any disallowance, even if to be made on account of personal or non-business nature, could only be made in the hands of Company and not in the hands of assessee. So far as remaining portion of disallowance is concerned, we find that the assessee has been consistently claiming that in absence of full details of Information Report, he was not able to explain the difference. We find that the Information is reported by third party agencies to Income-tax Department and the possibility of wrong reporting cannot be denied. In any case, when the assessee was consistently claiming that he is not able to explain the difference in absence of full details of Information Report, either the departmental authorities should have provided full information to assessee to enable him to delve into the difference or else they should have accepted the assessee’s simpliciter explanation that difference could not be reconciled in absence of full information. Since the authorities have not taken any pains to provide full information to assessee, the only judicious way to settle the controversy is to accept assessee’s explanation. At the cost of repetition, it is mentioned again that the credit card was provided by Company. Therefore, there is no justification in saddling the assessee with any disallowance.

In view of above discussion, we are persuaded to delete the entire disallowance of Rs. 5,22,614/- made by authorities. Ordered accordingly. The assessee succeeds in this appeal.

Resultantly, this appeal of assessee is allowed.

Order pronounced in the open court on 01/06/2023.


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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