MANACKRAJ KAMARAJ,AMBUR vs. ITO,NON CORPATE WARD 11(2), CHENNAI, CHENNAI
Facts
The assessee, an individual running a chat and juice shop, had their assessment selected for limited scrutiny concerning credit card payments. The Assessing Officer treated credit card payments of Rs. 25,69,251/- as unexplained cash credits under Section 68 and added it to the total income, which was confirmed by the CIT(A).
Held
The Tribunal held that the credit card payments are debits and cannot be taxed as unexplained cash credits under Section 68, which applies only to sums credited in books. The Tribunal also noted that the AO did not properly examine the evidence furnished by the assessee.
Key Issues
Whether credit card payments can be treated as unexplained cash credits under Section 68 of the Income Tax Act and whether the Assessing Officer properly examined the evidence provided by the assessee.
Sections Cited
68, 143(3), 115BBE, 156
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: MS. PADMAVATHY S & SHRI MANU KUMAR GIRI
आदेश / O R D E R
PER MANU KUMAR GIRI, JM: This appeal is directed against the order passed by the
ld.Commissioner of Income Tax (Appeals), NFAC, [‘CIT(A) in short]
dated 22.07.2025 confirming the assessment framed by the
Assessing Officer u/s.143(3) of the Income Tax Act, 1961 (“the
Act”), whereby an addition of Rs.25,69,251/- was made by treating
ITA No.2541/Chny/2025 (AY 2017-18) Manackraj Kamaraj VS ITO NCW 11(2) Chennai :: 2 ::
credit card payments as unexplained cash credits u/s. 68 of the Act,
1961.
The assessee is an individual engaged in running a chat and juice
shop in the name and style of Brunch Chat and Juices Shop and also
deriving commission and interest income from money lending
activity. For the relevant assessment year, the assessee filed return
of income declaring total income of Rs.4,43,200/-.The case was
selected for limited scrutiny under CASS for the specific reason
“Credit Card Payments”. Notices u/s.s 143(2) and 142(1) were
issued calling for details of credit card payments and source
thereof.During the assessment proceedings, the assessee furnished
bank statements and credit card statements of Citi Bank, HDFC
Bank, ICICI Bank and SBI. The Assessing Officer, being of the view
that the assessee failed to satisfactorily explain the source of credit
card bill payments aggregating to Rs.25,69,251/-, issued a show
cause notice proposing addition.The assessee explained that the
credit card payments were largely made on behalf of relatives and
family friends and were subsequently reimbursed either in cash or
through banking channels, and that such payments were never
claimed as business expenditure in the return of income.The
ITA No.2541/Chny/2025 (AY 2017-18) Manackraj Kamaraj VS ITO NCW 11(2) Chennai :: 3 ::
Assessing Officer, however, completed the assessment by treating
the entire credit card payments as unexplained cash credits u/s.68,
taxed the same u/s.115BBE, raised demand u/s. 156 amounting to
Rs.27,87,686/-.
The ld. CIT(A) confirmed the addition, observing that the
assessee failed to substantiate the source of payments.
Aggrieved, the assessee is in appeal before the Tribunal.
The ld. Authorised Representative submitted that credit card
payments are debits and cannot be brought to tax as unexplained
cash credits u/s. 68, which applies only where a sum is found
credited in the books. He further submitted that the case was
selected for limited scrutiny and the AO exceeded jurisdiction by
treating the issue as cash credits without approval of the Pr. CIT for
conversion into complete scrutiny. All detailed explanations and
confirmations from relatives and friends were furnished, which were
not examined by the AO. He further noted that the credit card
payments were not claimed as business expenditure, and therefore
no income element arises. He stated that the matter requires proper
factual verification and opportunity of hearing.
ITA No.2541/Chny/2025 (AY 2017-18) Manackraj Kamaraj VS ITO NCW 11(2) Chennai :: 4 ::
The ld. Departmental Representative relied on the orders of the
lower authorities and submitted that the assessee failed to prove
the source of payments.
We have carefully considered the rival submissions, perused the
orders of the authorities below and examined the material placed on
record, including the paper book filed by the assessee. It is an
undisputed fact that the assessment was selected for limited
scrutiny on the issue of credit card payments. It is also evident from
the assessment order that the addition has been made by invoking
section 68, treating credit card payments as unexplained cash
credits.
At the outset, we observe that the core issue involved is
verification of the source of payments made towards credit card
bills, which is a factual aspect requiring examination of supporting
evidence such as reimbursements, confirmations, bank entries and
nexus with personal or third-party expenditure.The assessee has
consistently contended that a substantial portion of the payments
were made on behalf of relatives and family friends and were
reimbursed subsequently, and that such payments were not claimed
as expenditure in the computation of income. The assessee has now
ITA No.2541/Chny/2025 (AY 2017-18) Manackraj Kamaraj VS ITO NCW 11(2) Chennai :: 5 ::
placed on record confirmation letters and supporting material.We
find merit in the contention that these evidences were not properly
examined or verified by the Assessing Officer. The assessment order
reflects that the addition has been made primarily on the ground
that the source was not explained, without undertaking a detailed
verification of confirmations or reimbursement claims.
Considering the totality of facts, we are of the view that the
interests of justice would be served by restoring the issue to the file
of the Assessing Officer for a fresh examination of the source of
credit card payments, strictly within the framework of law and after
granting adequate opportunity to the assessee. While doing so, the
Assessing Officer shall confine the enquiry to the issue of credit card
payments, being the subject matter of limited scrutiny and examine
the assessee’s claim that the payments were made on behalf of
relatives/friends and reimbursed, on the basis of confirmations and
bank evidence. AO will pass a speaking order in accordance with
law, without being influenced by earlier observations.
In the result, the appeal of the assessee is allowed for statistical
purposes, and the matter is set aside to the file of the Assessing
ITA No.2541/Chny/2025 (AY 2017-18) Manackraj Kamaraj VS ITO NCW 11(2) Chennai :: 6 :: Officer for de novo consideration in accordance with law and observations made herein above.
Order pronounced in the open court on 29th day of January, 2026 at Chennai. Sd/- Sd/- (प�ावती एस) (मनु कुमार िग�र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद*य/ACCOUNTANT MEMBER �या�यक सद*य/JUDICIAL MEMBER
चे�नई/Chennai, +दनांक/Dated: 29 JANUARY, 2026. SNDP, Sr. PS आदेश क ��त,ल-प अ.े-षत/Copy to:
अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF
