2006 (1) TMI 475 - AT - Income Tax

Unexplained expenditure - Appellate Tribunal provisions of section 2542(B) - estimate of expenditure - household and personal expenses - difference of opinion between the Hon ble Members - Whether the tax authorities were justified in estimating the withdrawals at Rs. 12, 000 P.M. ? - Award costs which is equivalent to the institution fee paid by the assessee for the two years under consideration. HELD THAT - There is no material to support that any extra expenditure was incurred by the assessee on entertainment and miscellaneous items like club expenses or on account of domestic servant. There is no evidence to show that the assessee was receiving floating relatives guests coming and going. The estimate of expenditure at the rate of Rs. 12, 000 per month is based on surmises as elaborately pointed out by the learned Judicial Member in his proposed order. I am not repeating all the reasons recorded by him. I deem it sufficient to hold that without proper material inference of expenditure on various alleged items could not be drawn. Thus the onus that lies on the Revenue u/s 69C cannot be taken to be discharged in these cases. Evidently either the assessee had withdrawn more than Rs. 5, 000 per month from bank or had some other source of withdrawal which was utilized and thus sufficient cash was left with the assessee for months of October 1995 to March 1996. If we go by withdrawal of Rs. 5, 000 per month as observed by Assessing Officer the total amount should have been Rs. 30, 000 and not Rs. 73, 127. Therefore some source of cash available for utilization for household expenses at Rs. 73, 127 was definitely there. This was not examined. Therefore on facts it is not possible to reject the assessee s claim that his wife had sufficient cash with her to last through the year. Revenue authorities brought no material on record to show why the withdrawal could not be accepted. No comparative case was cited to justify the estimated expenditure of Rs. 1, 44, 000 in the two years under appeal. Therefore on facts and circumstances of the case I am of the view that revenue authorities did not bring sufficient material on record to apply the provisions of section 69C of the I.T. Act and accordingly addition for low household withdrawals in the two years were not sustainable. The learned Judicial Member rightly deleted them in the proposed order. I am unable to agree with the learned Accountant Member that estimate of assessee s household expenses at Rs. 12, 000 per month is justified on fact. I agree with the view taken by the learned Judicial Member that additions made in two years are liable to be deleted. Levy of cost - Normally discretion to award cost is vested with the Tribunal to check filing of frivolous and unjustified appeals. The present appeals filed by the revenue cannot be said to be frivolous appeals to levy of heavy cost of Rs. 20, 000. The Assessing Officer did enquire into the aspect of expenditure incurred by the assessee and made addition in a bona fide manner by making estimate of household expenses. It is a different thing that the Tribunal as an appellate authority has not agreed with the above view. Even then one of us the learned Accountant Member has held that the addition made is fully justified. The revenue authorities were of the view that sufficient material to estimate household expenses at Rs. 12, 000 per month is available on record. May be the Tribunal as per majority does not agree with the above view. It is a case of difference of opinion and therefore I do not see any good reason to agree with the learned Judicial Member s order that the Revenue should be burdened with cost of Rs. 20, 000. I agree with the learned Accountant Member that this is not a fit case in which cost should be imposed. I answer the above questions referred to me as above - The matter should now be placed before the regular Bench for disposal of both the appeals in accordance with law.

Summary

Issues Involved:
1. Justification of estimating household withdrawals at Rs. 12,000 per month.
2. Appropriateness of awarding costs of Rs. 20,000 equivalent to the institution fee paid by the assessee for the two years under consideration.

Issue-wise Detailed Analysis:

1. Justification of Estimating Household Withdrawals at Rs. 12,000 per Month:

The case revolves around the assessment of household expenses of an individual who was the Managing Director of a reputed company. The assessee disclosed household expenses of Rs. 73,127 and Rs. 1,03,029 for the assessment years 1996-97 and 1997-98, respectively. The Assessing Officer (AO) was not satisfied with these figures and estimated the household expenses at Rs. 12,000 per month, totaling Rs. 1,44,000 annually. Consequently, additions of Rs. 70,874 and Rs. 40,971 were made for the respective years due to low withdrawals, assuming that the household expenses were met from unexplained sources.

The assessee contested these additions before the Commissioner of Income-tax (Appeals) [CIT(A)], who upheld the AO's decision. The matter was then brought before the Income-tax Appellate Tribunal (ITAT), where a difference of opinion arose between the Judicial Member and the Accountant Member.

The Judicial Member noted that the assessee's family consisted of only the husband and wife, and most household expenses were covered by the employer. He found the CIT(A)'s decision based on assumptions and conjectures without evidence, citing the Delhi High Court's decision in Yadu Hari Dalmia v. CIT [1980] 126 ITR 481, which emphasized that estimates without details are not sustainable. He concluded that the addition was based on surmises and deleted it, imposing a cost of Rs. 20,000 on the Revenue.

Conversely, the Accountant Member upheld the AO's estimate, noting that the assessee had not withdrawn any amount from the bank from October 1995 to March 1996, and the household expenses shown for the first six months were not believable. He maintained that the estimated expenses of Rs. 12,000 per month were justified given the assessee's status and lifestyle.

Upon review, it was noted that the AO did not provide a concrete basis for estimating household expenses at Rs. 12,000 per month, especially when the employer covered significant expenses. There was no evidence of additional expenses on entertainment, club memberships, or floating guests. The Judicial Member's view that the addition was based on conjectures was upheld, and the additions were deleted.

2. Appropriateness of Awarding Costs of Rs. 20,000:

The Judicial Member proposed awarding costs of Rs. 20,000 to the assessee, citing the unjustified additions and the expenses incurred in challenging them. The Accountant Member disagreed, stating that the Revenue's appeal was bona fide and not frivolous.

It was concluded that while the Tribunal as an appellate authority did not agree with the AO's view, the appeal was not frivolous. The AO had made the addition in a bona fide manner, and the difference in opinion among the Tribunal members further justified that the appeal had merit. Therefore, it was decided that this was not a fit case for imposing costs on the Revenue.

In summary, the Tribunal deleted the additions made for low household withdrawals, agreeing with the Judicial Member's view that the estimates were based on conjectures. However, it did not impose costs on the Revenue, aligning with the Accountant Member's opinion that the appeal was bona fide.