ASST. COMMISSIONER OF INCOME TAX- 16(1), MUMBAI, MUMBAI vs. MADHU ANAND SHAH, MUMBAI

Briefly stated, facts of the case are that, the assessee an individual, filed return of income for the year under consideration on 31st October 2018, declaring total income at Rs. 52,81,490/-. The return of income of the assessee was selected for scrutiny assessment and statutory notice as under the Income-Tax Act, 1961 (in short 'the Act') was issued and duly served upon the assessee.

During assessment proceeding, the Assessing Officer observed cash deposit of Rs. 12,91,300/- for repayment of the credit card dues. It was explained by the assessee that said cash was paid out of the cash balance available in hand. The assessee submitted that she already declared indirect income of Rs. 22,11,025/-, which is comprising of bank interest of Rs. 88,125/- and other income of Rs. 21,22,900/- which comprise of rental from the car, income from inaugurations, and bank interest of Rs. 31,700/-.

The assessee explained that the cash payment for credit card dues was incurred out of the other income which was received partly in cash. But the claim of the assessee was not accepted by the Assessing Officer, observing as under “2.1 The appellant is an individual andhas filed the return of income for A.Y 2018-19 on 31.10.2018 declaring total income of Rs. 52,81,490/-. The appellant's case was selected for limited scrutiny under the E-assessment Scheme, 2019 to verify the following issues: i. Credit card payment As per statement of financial transaction, the assessee has made substantial payments for credit card purchased in cash.

Further, during the course of the assessment proceeding, the Assessing Officer observed increase in unsecured loan compared to the preceding year. “2.3. During the course of assessment proceedings, to verify the issue of significant increase in the unsecured loans as compared to preceding year, the appellant was asked to furnish the details of unsecured loans, cash flow statement for the relevant period, ledger extracts of Shri Anand Shah as appearing in the books of the appellant and also the ledger extracts of the appellant as appearing in the books of Shri Anand Shah. The appellant has submitted that, Shri Anand Shah is her husband. Further, the opening balance of Anand Shah account in her books was Rs. 2,50,283/- and during the year an aggregate amount of Rs. 2,67,28,402/- has been credited while a sum of Rs. 1,05,92,935/- has been debited on various dates and net amount of Rs.1,63,85,750/-is only shown as unsecured loan from Shri Anand Shah.Even in the ITR also, the appellant has shown the net amount of Rs. 1,63,85,750/- as unsecured loan received from Shri Anand Shah. The appellant has added that, this net amount of Rs.1,63,85,750/-has been wrongly shown as “unsecured loan” and it was actually “gift from husband”.

On further appeal, the learned CIT(A) deleted both the additions observing as under “5.1 I have perused the order passed by the AO and the written submissions filed by the appellant. In this case, the appellant’s case was selected for scrutiny to verify the issue of cash payments against credit card dues and huge increase in unsecured loans. To verify both these issues, various notices have been issued to the appellant and the appellant has furnished the details called for during the course of assessment proceedings.

We have heard rival submission of the parries and perused the relevant material ion record. With regard to the amount received from Shri Anand Shah, the learned counsel for the assessee submitted that, although the amount had been reflected in the books as an unsecured loan, the assessee's case was that the same represented a gift from her husband. In support of the source, reliance was placed upon the bank statement of Shri Anand Shah, which, according to the learned counsel, evidenced the amounts transferred to the assessee. It was submitted that a part of the funds so transferred had been received by Shri Anand Shah from M/s Anandya Investment Company Private Limited, in which he was a director. According to the learned counsel, the company had been constituted to oversee the affairs of the group companies which were, at the relevant time, subject to proceedings before the BIFR/NCLT, and the funds received by Shri Anand Shah from the said company were partly utilised towards meeting the liabilities of the group concerns and partly transferred to the assessee. It was further submitted that Shri Anand Shah had also received funds upon encashment of two insurance policies and that the proceeds thereof were utilised, inter alia, for making the aforesaid gift to the assessee.

As regards the cash payments towards credit-card dues, the learned counsel submitted that the assessee owned two motor cars, namely, a Mercedes and a Range Rover. It was explained that, owing to the assessee's professional commitments and frequent travel outside Mumbai for shooting assignments, the vehicles remained unused for considerable periods and were, through family members and drivers, made available on hire to persons known to the assessee. According to the learned counsel, such activity generated rental receipts of Rs.12,66,200/-, which were duly disclosed as income under the head “Income from Other Sources”.

The learned counsel further submitted that the aforesaid cash receipts were utilised from time to time for making payments towards the assessee's credit-card dues, rather than being first deposited in the bank and thereafter transferred towards the credit-card liability. It was explained that the payments were directly deposited by the accountant, since the assessee's frequent absence from Mumbai made it impracticable for her to issue and sign cheques on each occasion. In support of the rental receipts, reliance was placed upon the summary of cash receipts and supporting vouchers, which, according to the learned counsel, had been furnished before the Assessing Officer as well as the learned CIT(A). Sample vouchers covering the relevant months and both vehicles were also placed on record of ld CIT(A).

The learned counsel further submitted that, apart from the aforesaid rental receipts, the assessee had also received certain amounts for attending inauguration functions as a celebrity invitee. It was submitted that, since the rental income itself was sufficient to explain the availability of funds utilised towards the credit-card payments, the receipts from such functions had not been elaborated upon in the earlier submissions. The learned counsel referred to the annexure furnished before the Assessing Officer on 02.03.2021, containing a summary of the cash receipts together with supporting vouchers.

It was accordingly submitted that the assessee had disclosed aggregate “Other Income” of Rs.21,22,900/-, comprising the aforesaid receipts and bank interest, and that the cash payments in question were made out of such disclosed income. The learned counsel contended that treating the same payments as unexplained would effectively result in taxing the very income which had already been offered to tax and would consequently lead to a duplication of the same income. The learned counsel, therefore, prayed that the impugned addition be deleted.

We have considered the rival submissions and perused the material available on record. The first issue concerns the cash payments made towards credit-card dues. The Assessing Officer treated the payments as unexplained expenditure, whereas the assessee explained that the same were met out of income of Rs.21,22,900/- disclosed under the head “Income from Other Sources”, which included income from car rentals, inauguration functions and bank interest. Such income had been duly offered to tax and accepted in the assessment. Once the corresponding income forming the stated source of the expenditure has been disclosed by the assessee and accepted by the Assessing Officer, the same cash cannot, without anything more, be treated as unexplained expenditure merely because it was utilised for payment of credit-card dues. No material has been brought on record to establish that the assessee did not possess the disclosed income or that the cash payments represented expenditure from any undisclosed source. The finding of the learned CIT(A) deleting the addition, therefore, calls for no interference.

The second issue relates to the addition of Rs.1,11,47,956/- under section 68 of the Act, being the peak credit arising from transactions in the account of Shri Anand Shah, the assessee's husband. The assessee had explained that the amount reflected in the books as unsecured loan was, in substance, a gift from her husband. The learned CIT(A) accepted the explanation after recording that the identity and creditworthiness of Shri Anand Shah stood established and that the source of funds had been explained.

We find that the Revenue has not brought any material to dislodge these findings. The transactions are between the assessee and her husband; the source of the funds in the hands of the husband is supported by banking records and is stated to comprise amounts received from a company in which he was a director and proceeds realised from insurance policies. The bank trail does not disclose any unexplained cash deposit preceding the amounts advanced to the assessee. The mere circumstance that the assessee had initially reflected the running account as an unsecured loan and subsequently explained the net balance as a gift may warrant scrutiny, but, in the absence of any material showing that the funds did not emanate from the stated source or that the transaction was otherwise fictitious, it cannot, by itself, justify the addition under section 68.

Section 68 requires the assessee to satisfactorily explain the nature and source of the credit. In the present case, the identity of the creditor and the source and financial capacity of the creditor have not been shown to be in doubt. The material on record, considered as a whole, also supports the movement of funds through identifiable banking channels. No contrary material has been brought on record by the Assessing Officer. We, therefore, find no infirmity in the conclusion of the learned CIT(A) that the impugned addition under section 68 was not sustainable.

We accordingly uphold the order of the learned CIT(A) deleting both additions. The grounds raised by the Revenue are dismissed.

In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 02/09/2026.

The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.