ITAT deletes addition of credit card expenses incurred by director (Appellant) for Company

Shri Manish Kumar Vs ACIT  (ITAT Indore)

Introduction: In the ongoing dispute between Shri Manish Kumar and ACIT, the ITAT Indore has recently ruled in favour of the appellant. The issue in contention involved the addition of Rs. 5,22,614/- by the AO, which was allegedly paid via credit card for non-business purposes. The ITAT ordered the entire disallowance be deleted after considering the appellant’s explanations and supporting evidence.

Analysis: The tribunal’s verdict hinges on the contention that the credit card expenses were not personal but were indeed incurred for the business purposes of M/s. Esspal International Pvt. Ltd., where the appellant serves as a director. Despite the AO’s repeated disallowance, the ITAT stressed that without full disclosure of the Information Report, the appellant could not fully explain the difference between the reported and recorded expenses. The tribunal further highlighted that the expenditure was recorded in the company’s books, and any disallowance should be levied on the company, not the individual.

Conclusion: The verdict in Shri Manish Kumar vs ACIT marks a significant precedent in tax cases concerning the disallowance of expenses alleged for non-business purposes. The ruling underscores the importance of complete disclosure by the authorities to the assessees. The tribunal’s decision also underlines the importance of distinguishing between personal and business expenses, especially when the payment method is shared between a company and an individual. As such, this ruling may have far-reaching implications for similar cases in the future.

FULL TEXT OF THE ORDER OF ITAT INDORE

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