Abhishek Dhurka Vs ITO (ITAT Kolkata)
Kolkata ITAT: Entire Credit-Card Expenditure Cannot Be Disallowed as Personal – Business Nexus Accepted; ₹16.78 Lakh Disallowance Restricted to ₹50,000 for Possible Personal Element
The assessee had declared income of ₹22.20 lakh. His case was selected for scrutiny because of substantial cash payments towards settlement of HDFC and IndusInd Bank credit-card dues aggregating to ₹16.78 lakh. Significantly, the AO accepted the source of the cash payments as cash generated from the assessee’s business, but nevertheless disallowed the entire credit-card expenditure on the ground that expenses relating to hotels, restaurants and domestic/foreign travel were personal in nature. CIT(A) confirmed the disallowance.
Before the Tribunal, the assessee demonstrated from the month-wise bifurcation of credit-card expenditure that substantial amounts represented drawings which had never been claimed as business expenditure. The details also separately identified expenditure towards iPhone EMI, interest, credit-card charges, payments to business creditors, subscriptions, sales promotion and travelling.
The Tribunal also noted that the scrutiny itself had originated from large cash payments against credit-card purchases, but the AO had ultimately accepted that those payments came from business cash generated through cash sales. Thus, there was no unexplained-source addition involved.
As regards foreign travel, however, the assessee could not fully establish that the entire expenditure was exclusively for business purposes. The assessee explained that foreign travel was undertaken for sourcing material and examining latest designs, but conceded that documentary evidence establishing the business purpose of the entire foreign travel was unavailable and accepted that a reasonable disallowance for personal element could be made.
The ITAT held that, apart from a possible personal element in travelling, entertainment and related credit-card charges, there was no justification for disallowing the entire ₹16.78 lakh. Considering the facts, it estimated the personal component at only ₹50,000 and held the balance expenditure allowable under Section 37(1) as business expenditure.
Accordingly, the ₹16.78 lakh disallowance was restricted to ₹50,000 and the balance was deleted. The assessee’s appeal was partly allowed.
Key takeaway: Merely because business expenditure is incurred through a personal credit card—or includes travel, hotel and restaurant payments-the entire expenditure cannot automatically be characterised as personal. Where the accounts distinguish drawings from business expenses and the surrounding evidence establishes business use, only a reasonable amount attributable to an identifiable personal element can be disallowed, rather than rejecting the entire claim.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals) -NFAC, Delhi [hereinafter referred to as Ld. ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2023-24 dated 07.02.2026.
