Taxpayer Shows Rs 6.3 Lakh Income, Pays Rs 27.65 Lakh Credit Card Bills; ITAT Steps In

A taxpayer who showed income of just over Rs 6.3 lakh in his return landed in trouble after the tax department noticed that he had paid Rs 27.65 lakh towards credit card dues during the same year.

The case related to Assessment Year 2023-24 and was heard by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT). The dispute was not over the entire credit card payment, but over the cash portion. Out of the total payments, Rs 13.95 lakh had been paid in cash.

The Income Tax Department asked the taxpayer, Shrenik Manish Mehta, to explain where this cash had come from, upon which he said that the money had been given to him by his family members. He said his father had given Rs 8 lakh, his mother Rs 4.50 lakh, and his wife Rs 3 lakh.

He said these amounts were given out of love and affection within the family. He also filed affidavits from the family members to support the claim. However, the income tax officer was not convinced.

Department Questioned Source Of Cash Payments

The Assessing Officer took the view that the explanation was not backed by enough evidence. The officer said that merely filing affidavits was not sufficient unless the taxpayer could also show that the family members had the financial capacity to give such amounts.

The taxpayer had said that his father was earlier in the transport business and later started an agarbatti business. His mother, he said, earned from tuition classes and by selling homemade food items. His wife was stated to be doing consultancy work.

However, the officer felt that the source of the cash had not been properly proved. The cash payment of Rs 13.95 lakh was, therefore, treated as unexplained money under Section 69A of the Income-tax Act and added to his income, according to a t report by the Financial Express.

The Commissioner of Income Tax (Appeals) also agreed with the tax department and upheld the addition. The taxpayer then moved the ITAT.

Tribunal Looked At Each Family Member Separately

Before the tribunal, the taxpayer placed more documents on record. These included confirmations, affidavits, income-tax returns, profit and loss accounts, and bank statements of the family members.

The ITAT did not accept the department’s stand in full. At the same time, it did not accept the taxpayer’s explanation completely either. It examined the financial position of each family member separately.

In the case of the taxpayer’s wife, the tribunal found that she had filed income-tax returns and had shown professional income under Section 44ADA. Her bank statement also reflected credits from different parties. On this basis, the ITAT accepted the explanation that she had given Rs 3 lakh to the taxpayer.

The position was different in the case of the mother. The tribunal noted that there were UPI credits in her bank account, which suggested some earning activity. She had claimed income from tuition classes and the sale of homemade food. But given the level of income shown by her, the tribunal accepted only half of the amount claimed. So, against the Rs 4.5 lakh said to have been received from her, the tribunal allowed relief of Rs 2.25 lakh.

The same approach was taken in the case of the father. His bank account showed regular debits and credits, indicating some business activity. But the tribunal was not satisfied that he could have given the full Rs 8 lakh. It accepted Rs 4 lakh and sustained the balance.

Taxpayer Gets Partial Relief

In the end, the ITAT deleted Rs 9.25 lakh from the addition made by the tax department. This included Rs 3 lakh attributed to the wife, Rs 2.25 lakh attributed to the mother, and Rs 4 lakh attributed to the father.

The remaining addition of Rs 4.70 lakh was sustained. The appeal was, therefore, partly allowed.

The case is a reminder that large cash payments can easily attract tax scrutiny, especially when they appear disproportionate to the income declared on the return. Credit card spending and repayment patterns are visible to the department and may be questioned if they do not match the taxpayer’s reported finances.

Family Gifts Need Proper Paper Trail

Many taxpayers assume that money received from parents, spouses, or close relatives will not create tax problems. That may not always be the case. If the amount is large, the tax department can still ask where the donor got the money from.

In such cases, the taxpayer may have to prove three things: who gave the money, whether that person had the means to give it, and whether the transaction was genuine.

Affidavits may help, but they may not be enough by themselves. Bank statements, income-tax returns, business records, cash flow details, and other supporting papers can become important if the matter is questioned.

The ruling also shows that appellate authorities may take a practical view where some evidence exists. In this case, the ITAT gave relief where it found supporting material, but sustained the addition where the explanation was not fully backed by records.

For taxpayers, the lesson is straightforward. If large sums are paid in cash, especially towards credit card bills or other high-value expenses, the source should be properly documented. Without that, even a genuine family arrangement can turn into a tax dispute.

FAQs

1. Why did the taxpayer receive a tax notice?

The taxpayer had declared income of just over Rs 6.3 lakh but had paid Rs 27.65 lakh towards credit card dues, including Rs 13.95 lakh in cash.

2. Can money received from family members be questioned by the tax department?

Yes. If the amount is large, the taxpayer may have to prove the donor’s identity, financial capacity, and genuineness of the transaction.

3. What did the ITAT decide in this case?

The ITAT gave partial relief of Rs 9.25 lakh after accepting part of the family gift explanation, but sustained the remaining addition of Rs 4.70 lakh.