The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ), held that the misuse of credit cards by a friend cannot be treated as personal expenditure.
The assessee, Abdulmannan Mohammedkasad Bastawala, was a salaried employee.
The assessing officer ( AO ) observed that the assessee had only mentioned about salary from M/s Blue Dart Express Ltd. in the Income Tax Returns ( ITR ) and did not mention anything regarding credit card payments made by the assessee amounting to Rs. 19,96,363. The assessee was asked by the AO to explain these transactions through notices issued under Section 142( 1 ) of the Income Tax Act,1961.
Law and Procedure for Filing of Appeals
The assessee had clarified that the transactions had not been made by him and that his friend had misused his credit cards and then absconded, leaving him unaware of the charges. He emphasized that he had not repaid these expenses to the credit card companies and had gained no personal benefit.
The AO did not accept the submissions that were made the assessee and made an addition of around Rs. 20 lakhs as unexplained income and imposed penalties.
The Commissioner of Income Tax ( Appeals ) [ CIT( A ) ] upheld the penalties, and the assessee appealed before ITAT for relief.
The assessee’s counsel contended that he had consistently explained the situation and responded to the notices.
The bench observed that the assessee had neither benefitted from the transactions nor shown any intent to evade taxes.
The bench, comprising Dr. BRR Kumar ( Vice President ) and Siddhartha Nautiyal ( Judicial Memebr ) held that the credit card of the assessee was misused by a friend of him, who was now absconding. The bench quashed the penalty under Section 271(1)(b) of the Income Tax Act, 1961.
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