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Facts
The assessee filed original and revised Returns of Income for AY 2017-18. The AO made additions of Rs. 83,409 for HRA disallowance and Rs. 5,97,600 for unexplained credit card payments under Section 68, which were upheld by the CIT(A). The assessee contended that credit card payments were made on behalf of a friend who repaid him in cash from business receipts, supported by confirmation and ROI of the friend.
Held
The Tribunal set aside the addition of Rs. 5,97,600 under Section 68 to the AO for fresh adjudication, directing verification of the friend's income, cash receipts, and submission of supporting documents. Other grounds related to HRA disallowance and general grounds were dismissed as not pressed or general in nature.
Key Issues
Whether the addition of unexplained credit card payments under Section 68, claimed as repayments from a friend's business, is justified and requires further verification of cash transactions and income sources.
Sections Cited
143(2), 143(3), 68, 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI RAVISH SOOD & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by Shri Sravan Kumar Ratakonda (“the assessee”), feeling aggrieved by the order passed by the Learned ADDL/JCIT(A)-10, Mumbai (“Ld. First Appellate Authority”), dated 28.01.2025 for the A.Y. 2017-18.
The assessee has raised the following grounds of appeal :
1. 3. The brief facts of the case are that, the assessee is an individual who filed his Return of Income (“ROI”) for Assessment Year 2017– 18 on 28.06.2017, declaring a total income of Rs.12,57,960/-. Subsequently, the assessee filed a revised return of income on 29.08.2018, declaring total income of Rs.17,15,270/-. The case was selected for limited scrutiny and a notice under Section 143(2) of the Income Tax Act, 1961 (“the Act”) dated 10.08.2018 was issued by the Learned Assessing Officer (“Ld. AO”). After considering the submissions of the assessee, the Ld. AO completed the assessment under Section 143(3) of the Act on 20.11.2019 by making an addition of Rs.83,409/- on account of house rent allowance and an addition of Rs.5,97,600/- under Section 68 of the Act, and assessed the total income at Rs.23,96,279/-.
4. Aggrieved with the order of Ld. AO, the assessee preferred an appeal before the Ld. First Appellate Authority, who upheld the additions made by the Ld. AO and dismissed the appeal.
5. Aggrieved with the order of Ld. First Appellate Authority, the assessee has filed the present appeal before the Tribunal. At the threshold of the hearing, the Learned Authorised Representative (“Ld. AR”) submitted that, the assessee is not pressing Ground No.2. Accordingly, the same is dismissed as not pressed. Ground Nos.1 and 5 are general in nature and hence dismissed.
6. Ground Nos. 3 and 4 relate to the addition of Rs.5,97,600/- under Section 68 of the Act. The Ld. AR submitted that the said addition represents the credit card payments made by the assessee which, according to the assessee, were made on behalf of his friend Shri J. Veeresh, who was using the assessee’s credit card for business purposes. It was submitted that a confirmation letter from the said friend was filed before the Ld. AO during assessment proceedings. Further, before the Ld. CIT(A), the assessee also submitted a copy of Form 26AS and ROI of his friend to demonstrate that his friend was engaged in business activities and was receiving income under Section 44AD of the Act. The Ld. AR drew our attention to the computation of income and Form 26AS of his friend placed at page nos. 18 to 23 of the paper book, showing that his friend had declared income under Section 44AD of the Act from business of internet services. It was further submitted by the Ld. AR that, after receiving business receipts in cash, his friend repaid the assessee who then deposited the cash into his credit card account. The Ld. AR prayed for deletion of the addition of Rs.5,97,600/- under Section 68 of the Act.
7. Per contra, the Learned Departmental Representative (“Ld. DR”) relied on the orders of the lower authorities and submitted that in Income Tax Return placed at page no.13 of the paper book, the friend of the assessee has declared a total turnover of only Rs.4,12,000/-, all of which is through banking channels. He further submitted that, the contention of the assessee that his friend received Rs.5,97,600/- in cash and repaid it to the assessee for deposit into the credit card account is unsubstantiated. It was argued that no confirmation from the parties from whom his friend allegedly received such cash was furnished.
8. We have considered the rival submissions and perused the material available on record. We find merits in the contention of the Ld. DR that as per the Income Tax Return of the friend of the assessee ( page no. 13 of the paper book) the entire turnover of Rs.4,12,000/- is from banking channel. However we also found that the friend of the assessee has declared in addition to business receipts of Rs.4,12,000/- under Section 44AD of the Act, income of Rs.1,02,920/- under the head “Income from Other Sources” as seen from computation of income placed at page no.18 of the paper book. Therefore, it is a matter of verification that, how much of the receipts of the assessee’s friend is in cash and how much of the cash has been handed over to the assessee. Therefore, to ascertain the correctness of the source of funds deposited in the assessee’s credit card account, the matter needs verification. Accordingly, we deem it fit and proper to set aside the issue of addition of Rs.5,97,600/- under Section 68 of the Act to the file of the Ld. AO for fresh adjudication, with the directions that the Ld. AO shall verify the exact quantum and mode of receipt of income by assessee’s friend, and whether any cash was handed over to the assessee for the purpose of credit card payments. The Ld. AO shall consider the confirmation letter, income-tax return, and Form 26AS of assessee’s friend and also call for his personal confirmation and supporting documents. The assessee shall be given due opportunity of being heard and shall be at liberty to file additional evidences, if any, to substantiate his claim.
In the result, the appeal of the assessee is partly allowed for statistical purposes.