Credit Card payment without showing Income Source attracts S. 69A Addition

In today's world, cashless transactions are predominantly ruling and most of us make our transactions through credit and debit cards. Section 69 of the Income Tax Act, 1961, deals with the treatment of unexplained money or valuable articles found in the possession of an assessee. It empowers the Income Tax Department to treat such items as deemed income in specific circumstances.

A recent interpretation of the scope of Section 69A of the Income Tax Act of 1961 is that credit card payments made without showing the source of income would attract an addition under the above-mentioned section.

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Section 69A is a provision that helps the Income Tax Department to handle the problem of unaccounted wealth and ensure that undisclosed income is brought under the tax net.

Understanding Section 69 A

Interestingly, Section 69 A was inserted by the Finance Act of 1964. This section comes into play when ash, gold, jewels, or any other valuable item is discovered in the possession of an individual and the individual fails to record the asset in their books of account or to adequately explain its origin.

The value of Section 69A is mainly evident during income tax surveys, searches, or assessments. These situations reveal hidden assets that the person has not disclosed, such as cash, gold, or other valuables. As soon as these assets are found, the onus of proving their authenticity is on the individual.

By virtue of this section, the value of the assets is assumed to be part of the person's income for that fiscal year if they are unable to explain how they obtained them or if the Assessing Officer ( AO ) finds their explanation inadequate.

For the assessing officer to make an addition under Section 69 of the Income Tax statute, such items or unexplained money must not be recorded in the books of account, if any, maintained by the assessee for any source of income.

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Also, additions can be made if the assessee does not provide an explanation about the nature and source of acquisition or if the AO feels that the explanation given by the assessee is unsatisfactory.

Undoubtedly, the burden of proof lies on the assessee to prove the credibility of the source on which Section 69A addition has been made.

Credit Card Payments and Section 69 A

A recent interpretation of the scope of Section 69A of the Income Tax Act of 1961 is that credit card payments made without showing the source of income would attract an addition under the Section.

In a recent decision of the Income Tax Appellate Tribunal ( ITAT ) of Surat, it upheld the decision of AO in making an addition under Section 69 A of the Income Tax Act as the source was not disclosed regarding the credit card payment.

To read more about the judgment, https://www.taxscan.in/credit-card-payment-without-showing-income-source-attracts-s-69a-addition-itat-upholds-rs-6-16l-addition/473013/.

In the above-mentioned case, the addition was made by the AO on cash payments of Rs. 6,16,142 towards credit card purchases, and when asked by the AO to explain the source of this amount, the assessee failed to respond, even after a show cause notice was issued. The ITAT in this case held that Section 69A addition was valid as the assessee did not explain the source of the credit card payments.

It is to be noted that the unexplained credit card payments are included in the taxpayer's income for the financial year in which they were made.

Get a Copy of Direct Taxes Law and Practices Including Tax Planning with Free E-Book Access, Click Here

There are no deductions or exemptions available for unexplained income added under Section 69A.

A Few tips to avoid Section 69 Additions for Credit Card Payments includes maintaining proper documentation of your transactions and making sure that you match your credit card payments along with your declared income. In addition, you may report all your sources of income,  including part-time job, freelancing, etc

Section 69 of the Income Tax Act helps in ensuring transparency and accountability among the assessees. This section has recently gained importance, especially in situations involving demonetization, money laundering, and high-profile searches. Section 69A promotes financial discipline and tax compliance by making individuals accountable for their unexplained wealth.

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