ITAT Hyderabad Sets Aside Section 69C Addition on Credit Card Expenditure: Third-Party Usage Claim Warrants Fresh AO Inquiry

Overview of the Case

In a significant ruling touching upon the scope of the Assessing Officer's investigative obligations and the limits of burden-shifting under Section 69C of the Income Tax Act, 1961, the Income Tax Appellate Tribunal, Hyderabad Bench, delivered its verdict in Satyanarayana Murthy Kancharla Vs ITO (ITAT Hyderabad) — setting aside an addition of ₹75,29,077/- and directing a fresh round of adjudication. The matter arose from credit card payments that the AO had treated as unexplained expenditure without conducting adequate independent verification.

Background and Factual Matrix

The assessee in this case was a salaried professional employed with Tech Mahindra Limited. He had not filed a return of income under Section 139 of the Income Tax Act, 1961 for Assessment Year 2020-21. The Assessing Officer, having come across information regarding substantial payments made against four credit card accounts during the relevant year, initiated reassessment proceedings under Section 147 of the Act.

Following the order passed under Section 148A(d) of the Act on 28.03.2024, a notice was issued under Section 148 of the Act on the same date. In response, the assessee filed his return of income on 20.04.2024, declaring a total income of ₹5,97,460/-.

During the assessment proceedings, the AO sought an explanation from the assessee regarding credit card payments aggregating to ₹75,29,077/-. The assessee's explanation failed to satisfy the AO, who proceeded to treat the entire credit card outgo as unexplained expenditure and made an addition of ₹75,29,077/- under Section 69C of the Income Tax Act, 1961. The assessment was completed under Section 147 read with Section 144B of the Act on 24.01.2025, fixing the assessee's total income at ₹81,26,537/-.

Assessee's Contentions Before the Lower Authorities and the Tribunal

The core argument advanced by the assessee, both before the lower authorities and before the ITAT, was that the credit cards registered in his name had been physically handed over to one Mr. G. Nageswararao for use, against an agreed commission of 2% on each transaction facilitated through those cards. According to the assessee, every transaction appearing in the credit card statements was actually attributable to Mr. G. Nageswararao and not to the assessee himself.

The assessee's Authorized Representative highlighted the following points before the Tribunal: