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.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to uphold the order of the AO in making addition of Rs. 16,78,325/- u/s 37 of the I.T Act, 1961 is arbitrary, excessive and illegal.
2. That on the facts and in the circumstances of the case the action of Ld. CIT(A) upholding the order of the AO making an addition of Rs. 16,78,325/- is contrary to material evidences on record and the addition is arbitrary, excessive, illegal and bad in law.
3. That the order of the Ld. CIT(A) confirming the addition made by the A.O. is arbitrary, excessive and illegal.
4. That the above grounds of appeal will be argued in details at the time of hearing and the appellant craves leaves to submit additional grounds of appeal if any and or alter, vary, modify or rectify the statement of facts and grounds of appeal at or before the time of hearing.”
3. Brief facts of the case are that the assessee had filed the return of income for AY 2023-24 on 06.11.2023 declaring the total income at ₹22,20,530/-. The case was selected for scrutiny as the assessee had made substantial cash payments towards the settlement of credit card dues. The Assessing Officer (hereinafter referred to as Ld. ‘AO’) investigated the source of cash utilized for these payments and the nature of expenses incurred through HDFC and IndusInd Bank credit cards aggregating to ₹16,78,325/-. While the Ld. AO accepted the source of cash as generated from the business, the expenses incurred for hotel stays, restaurants, and travelling within India and abroad were treated as personal in nature and not related to the business activities of the assessee. Consequently, the Ld. AO disallowed the entire credit card expenditure of ₹16,78,325/- and added it to the total income, and determined the total income at ₹38,98,860/- u/s 143(3) r.w.s. 144B of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who noted that mere ledger accounts without supporting independent third-party evidences such as invoices, travel itineraries, or business meeting records did not establish the required business nexus, and held that the expenses assumed the character of personal expenditure. Accordingly, the Ld. CIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee vide his findings as under:
“7.1 I have carefully considered the assessment order, the statement of facts filed in Form No. 35, the grounds of appeal, and the written submissions furnished by the appellant during the course of appellate proceedings. Since Ground Nos. 1 and 2 relate to the disallowance of credit card expenditure aggregating to Rs. 16,78,325/-, both the grounds are inter-connected and are adjudicated together for the sake of brevity.
7.2 The Assessing Officer, during the course of scrutiny assessment proceedings, observed that the appellant had made cash payments aggregating to Rs. 16,78,325/- towards settlement of credit card dues pertaining to HDFC Bank and Indusind Bank. On examination of the credit card statements, it was noticed that the payments related to expenditure incurred towards hotel stays, restaurants and travelling within India as well as abroad. The appellant explained before the Assessing Officer that the credit card payments were made out of cash generated from business and that the expenses incurred through such credit cards were business related. However, the Assessing Officer was not convinced with the explanation to the extent of allowability of expenditure and held that the nature of the expenses was personal and not incurred for the purposes of business. Accordingly, the entire amount of Rs. 16,78,325/- was disallowed and added to the total income.
7.3 During the appellate proceedings, the appellant reiterated the submissions made before the Assessing Officer and contended that the disallowance was made without properly appreciating the ledger account of credit card expenses and month-wise details furnished during assessment. It was submitted that personal expenses were debited to drawings account and only business-related expenses were charged to the Profit & Loss Account under various heads such as sales promotion, travelling, EMI payments and credit card charges.
7.4 The appellant further contended that the actual expenditure attributable to hotel stay, restaurants and travelling aggregated only to Rs. 4,68,570/- and that such expenditure was incurred wholly and exclusively for the purposes of business. It was argued that such expenses were necessary for entertaining customers, business associates and for development of business, including foreign travel for exploring new products and designs.
7.5 I have examined the submissions of the appellant in the light of material available on record. The primary issue for consideration is whether the impugned credit card expenditure can be said to have been incurred wholly and exclusively for the purposes of business so as to qualify for deduction u/s. 37(1) of the Income-tax Act, 1961.
7.6 In this regard, it is a settled principle of law that the onus is upon the appellant to substantiate, with credible documentary evidences, that the expenditure claimed is business expenditure and has been incurred wholly and exclusively for the purposes of business. Mere book entries or self- serving ledger extracts, without supporting third-party evidences, do not conclusively establish the business nexus of the expenditure.
7.7 In the present case, although the appellant has furnished ledger accounts and a month -wise summary of credit card expenses, no independent documentary evidences such as invoices, bills, vouchers, travel itineraries, details of persons entertained, business meeting records, agreements, correspondence or any other corroborative material have been produced to demonstrate that the expenditure was incurred in the course of business. In the absence of supporting evidences establishing direct nexus with business activities, such expenditure assumes the character of personal or non-business expenditure.
7.8 The appellant’s contention that certain expenses were incurred for customer entertainment or for exploring business opportunities abroad remains general and unsubstantiated. No documentary material has been brought on record to establish the business purpose, business expediency, or revenue linkage of such expenditure. Therefore, the claim remains in the realm of assertion without proof.
7.9 It is further observed that the Assessing Officer has already accepted the source of cash utilized for settlement of credit card dues as being out of business cash. The disallowance has been made not on account of unexplained source but on account of non-allowability of the expenditure itself. Hence, the grievance of the appellant that the addition was made without appreciating the source explanation is misplaced.
7.10 In view of the foregoing discussion, I am of the considered opinion that the appellant has failed to discharge the onus cast upon him to prove that the impugned expenditure of Rs. 16,78,325/- was incurred wholly and exclusively for the purposes of business as required u/s. 37(1) of the Act. The Assessing Officer was, therefore, justified in treating the same as non- business/ personal expenditure and disallowing the claim.
7.11 Accordingly, the disallowance of Rs. 16,78,325/ – made by the Assessing Officer is hereby confirmed. and Ground No. 1 and 2 raised by the appellant are dismissed.
7.12 Ground No. 3 is general in nature, wherein the appellant has merely sought leave to file additional grounds or to amend or alter the existing grounds of appeal at or before the time of hearing. Since this ground does not arise out of the assessment order and does not call for any separate adjudication, the same is treated as infructuous and is accordingly dismissed. In the result, the appeal is dismissed.”
4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted that the only issue raised in this case relates to disallowance of claim of expenditure of ₹16,78,325/-. Before us a paper book has been filed. It was submitted that the expenses of ₹16,78,725/- on account of credit card related to various heads of income. The assessment was taken up on the ground of “large cash payments made for credit card purchases”; however, no addition was made as the same was held to be out of the cash in hand of the business which had been collected through the cash sale s of the business and which explanation was found to be acceptable. However, the expenses incurred for hotel stays, restaurants, traveling in and outside India were not found to be acceptable as the same allegedly did not relate to the business in any manner and were held to be personal expenses as the bills were not available. The Ld. CIT(A) dismissed the appeal vide his finding as extracted above. The Ld. AR drew our attention to page 48 of the paper book filed before us which gives the month-wise details of HDFC and IndusInd credit cards in which various expenses have been bifurcated and which is reproduced as under:
6. It was submitted that the assessee had shown a sum of ₹4,74,747/- as drawings which was separately mentioned and was not claimed as a deduction, a sum of ₹2,07,098/- as iPhone EMI expenses, the iPhone being shown as an asset in the balance sheet and was being used for business purposes, ₹8,081/- as iPhone EMI interest, ₹4,648/- as charges and ₹2,50,214/- paid to creditors for business purposes and another sum of ₹7,998/- for subscription as regards the credit card of HDFC. For the credit card of IndusInd Bank, the drawings were for a sum of ₹6,37,773/- which were not claimed as an expenditure. Sales promotion was of ₹40,026/-. The charges were ₹2,832/- and travelling expenses of ₹1,80,864/- were incurred. Our attention was also drawn to page 44 of the paper book which is a general ledger account giving details of month-wise details of such expenses and also containing month-wise cash flow statement as under:
7. Page 45 of the paper book is the general ledger statement of HDFC credit card and page 47 is the general ledger statement of IndusInd Bank in which these transactions are mentioned.
8. Our attention was also drawn to page 5 of the paper book, which is the balance sheet. The Ld. CIT(A) has mentioned in para 7.7 that the assessee was not able to furnish the bills. The Ld. AR submitted that the sales promotion expenses were business expenses and there were other subscription expenses as well.
9. The Ld. DR submitted in the rejoinder that page 4 of the assessment order mentions travelling to Dubai and this was personal in nature because the same did not relate to the business of the assessee.
10. The Ld. AR countered by stating that the assessee was sourcing material from markets abroad and also considering the latest designs and as per page 48, the travelling expenses incurred in IndusInd credit card were ₹1,80,864/-. When required to explain whether the assessee was having evidence for the claim that the entire expenses on account of foreign travel were incurred for business purposes as the Ld. AO had validly doubted the expenses related to IndusInd credit card, the Ld. AR expressed his inability and when pointed out to the Ld. AR that the personal element in foreign travel could not be ruled out, the Ld. AR submitted that a reasonable disallowance may be made.
11. We have considered the submissions made, gone throug h the facts of the case and perused the record and the order of the Ld. CIT(A). The Bench was of the view that in view of the explanation filed before the Ld. CIT(A) and the fact that the assessment was taken up for scrutiny on account of “large cash payments made for credit card purchases” but no addition was made on this account as the same was held to be out of the cash in hand of the business which had been collected through the cash sales of the business and which explanation was found to be acceptable, therefore, except out of travelling expenses, service charges as credit cards were also used for drawings made by the assessee and entertainment expenses, no other disallowance was justified; therefore, out of the expenses under these three heads, we are of the view that a sum of ₹50,000/- can be disallowed on account of personal element involved and rest of the expenses are held to be related to the business of the assessee and therefore, the same are allowable u/s 37(1) of the Act and the addition confirmed is to the extent of ₹50,000/- as per our finding and rest of the disallowance made is hereby deleted. Hence, Ground Nos. 1, 2 and 3 of the appeal are partly allowed while Ground No. 4 is general in nature and does not require any separate adjudication.
12. In the result the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 14th August, 2026.
