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Facts
The assessee, a partner in M/s Microlit, had credit card expenses of Rs. 54,79,618/- reimbursed by the firm. The Assessing Officer disallowed 10% of these expenses as personal due to lack of clear bifurcation, an addition which the CIT(A) upheld. The assessee contended that these were corporate card expenses used solely for the firm's business travel, not claimed by him, and the firm had properly accounted for them.
Held
The Tribunal noted that the assessee failed to adequately explain the nature of expenses or their business relevance to lower authorities, and submitted a ledger account as new evidence for the first time. To ensure a fair and comprehensive examination, the Tribunal remanded the case back to the Assessing Officer to consider all new and existing evidence and pass a fresh order in accordance with the law.
Key Issues
Whether credit card expenses reimbursed by a partnership firm to a partner, alleged to be for business but lacking detailed explanation before lower authorities, constitute personal expenditure or a perquisite, and the admissibility and consideration of new evidence at the appellate stage.
Sections Cited
250, 143(3), 10(2A), 17(2)(iv)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
A.Y. 2016-17 Ajay Jain, vs. ACIT-3, A-22, Sector J, Aliganj Extension, Lucknow New Lucknow, U.P. PAN:AAQPJ0273N (Appellant) (Respondent) Assessee by: Sh. Ashwini Kumar, C.A. Revenue by: Sh. Sunil Kumar Rajwanshi, Addl CIT (DR) Date of hearing: 23.04.2025 Date of pronouncement: 04.07.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. JCIT(Appeals)-13, Mumbai under section 250 of the Income Tax Act, 1961 on 27.05.2024 dismissing the appeal of the assessee against the order of the ld. AO passed under section 143(3) of the Income Tax Act on 15.12.2018. The grounds of appeal are as under:-
1. That the Learned Lower Court erred in dismissing the appeal on the facts and in the circumstances of the case.
2. That the appeal filed u/s 250 should have been accepted by the Learned Lower Court.
3. Learned Lower Court erred in confirming the addition made in the order passed U/s 143(3) ignoring the various replies and evidences filed before the Learned Assessing Officer.
4. That Learned Lower Court erred in making addition of Rs 5,47,960/- against payments made for Credit Card being 10% of the total payments made to Cr Cards when no expenses were claimed by the appellant in its own return.
5. That the additions made are bad in law on the facts and legal aspects of the case.
6. That the addition made are too excessive, arbitrary & without any basis. 1 Ajay Jain A.Y. 2016-17 7. That the order passed is against the merit, circumstances and legal aspects of the case. 8. That the appellant seeks permission to modify and/or add any other ground or grounds of appeal as the circumstances of the case might require or justify.”
The facts of the case are that the assessee filed a return of income for the assessment year 2016-17 which was subsequently selected for scrutiny. During the course of assessment, the ld. AO found that the assessee had incurred credit card expenses of Rs. 54,79,618/-, the bill of which had been settled by M/s Microlit, a firm in which the assessee was a partner. Accordingly, the assessee was asked to show cause as to why the amount should not be added back to the income of the assessee and the ld. AO records that in response, the assessee submitted that the expenses were incurred on behalf of the firm and accordingly they had been properly accounted for in the books of M/s Microlit, who had made the payments. However, the ld. AO records that how these expenses were wholly for M/s Microlit was not made clear. Since the exact bifurcation was not clear therefore, the ld. AO disallowed 10% of the above and added the same back to the income of the assessee.
Aggrieved with the said assessment order, the assessee filed an appeal to the ld. CIT(A)-1, Lucknow which was subsequently migrated and allotted to the present appellate authority i.e. JCIT(Appeal)-13, Mumbai. In the course of appeal, it was submitted that the reimbursement on account of credit card expenses incurred by the assessee was not in the nature of income from M/s Microlit where the assessee was a partner. Furthermore, the order had been passed in violation of the principles of natural justice. In response to the notice issued by the Addl CIT(Appeals)-3, Mumbai, it was submitted that the disallowance was bad in law because the reimbursement was not in the nature of income. It was further submitted that the assessee had not claimed any expenditure on account of the credit card payments. Rather, the expenditure had been claimed by the firm M/s Microlit since the payments were made on its behalf and that the assessee was in receipt of remuneration / interest from the firm M/s Microlit Ajay Jain A.Y. 2016-17 to the extent of Rs.29,36,739/- in his capacity as partner with 25% share in the firm. Accordingly, on these grounds, it was prayed that the addition may be deleted. However, the ld. Addl CIT(Appeals) observed that the assessee had not mentioned anywhere as to what was the purpose of the payment and what works were done against the above payments. Therefore, a mere statement that the payments have been made for the work of the firm, could not be a valid ground to accept the assessee’s contentions. He, therefore, upheld the action of the ld. AO in disallowing 10% of total credit card payments considering the same to be personal in nature, in the absence of any concrete documentary evidences.
The assessee is aggrieved at this dismissal of his appeal and has accordingly come in appeal before us. Sh. Ashwini Kumar, C.A. appearing on behalf of the assessee submitted that the assessee was an active partner in two firms M/s Microlit with a share profit of 25% and M/s Lucknow Nawabs with a share profit of 50%. He was earning salary income, interest on capital contribution and share of profit from M/s Mircolit. The assessee had earned exempt income on account of share of profit from M/s Microlit of Rs. 63,67,786.72/- and incurred a share in loss from M/s Lucknow Nawabs of Rs.2,42,681/-. It was submitted that the credit card in question was a corporate credit card which was used by the assessee during his travels for the business of the firm and no part of the expenses so incurred were on his personal account. It is for this reason that the partnership firm had paid the bills of this credit card and since the assessee had not claimed any expenditure on this account, therefore, no disallowance was called for in the hands of the assessee. Our attention was also invited to the ledger account of the Citi Card of Sh. Ajay Jain in the books of M/s Microlit submitted on page 168 to 172 of the paper book and the ld. AR pointed out that perusal of this ledger account would show that the expenses had entirely been incurred on travels for the business of the firm.
Ajay Jain A.Y. 2016-17 5. On the other hand, Sh. Sunil Kumar Rajwanshi, ld. Sr. DR pointed out that the assessee had not stated the nature of the expenditure either before the ld. AO or before the ld. Addl CIT(Appeals) even this ledger account was fresh evidence which the assessee had not placed before the lower authorities and therefore, the lower authorities had no occasion to examine whether these were for the business of the firm or on personal account. The assessee had not even disclosed as to what was the nature of the business of the firm and therefore, the disallowance made in the hands of the assessee was justified. He, therefore, prayed that the addition deserves to be confirmed.
We have duly considered the facts and circumstances of the case. We observe that the assessee has claimed the credit card to be a corporate card, the expenses in relation to which have been incurred for the purposes of the firm and a perusal of the statement of expenses show that it has primarily been utilized for travel expenses of the partner to various places and countries. It is further observed that the assessee has not claimed the same as a deduction from his income, but it is the partnership firm which would have claimed these expenses as deductible from its total income, thereby reducing its profits. We note that if these expenses were not to be incurred by the firm, then they would go towards increasing the profit of the firm, which upon distribution would be exempt in the hands of the assessee under section 10(2A) of the Income Tax Act. However, it is equally clear that the assessee has not explained the nature of these expenses and how they were related to the business of the firm, before the lower authorities. Even the ledger account has been filed before us for the first time. This, in our view, is important because unless the assessee could show that these expenses have been incurred for the business of the firm, they are potentially liable to be added back in his hands as a perquisite within the meaning of section 17(2)(iv). Of course, if the assessee makes out a case that these represent expenditures incurred for the business of the firm, these are not liable to be considered as income in his hands. Considering that the arguments and materials that have been furnished before us have 4 Ajay Jain A.Y. 2016-17 not been placed before the lower authorities, we deem it appropriate in the interest of justice to restore the matter back to the file of the Assessing Officer so as to enable him to consider this material as well as any other evidence that the assessee may like to produce, and thereafter pass a fresh order in accordance with law.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 04.07.2025 in the Open Court.