2009 (4) TMI 938 - AT - Income Tax

Estimation of household expenses - Addition on low household withdrawals - assessment u/s. 153A r/w s. 143(3) - assessee explained that the household expenses are met from self-contributions, contributions from his brother, i.e., the other appellant and another family member - expenses declared by the assessee have been held to be inadequate by the AO. HELD THAT - We find that before the claim of household expenses made by the assessee is to be rejected, the AO must bring out cogent material and evidence. In this case, reasons advanced by the AO are quite general in nature. In fact, the first reason relating to the household articles pointed out, does not turn much on the subject because such articles are a normal occurrence in urban household. There is no allegation by the AO, much less a finding, that the lifestyle or the expenditure on the gadgets was ostentatiously lavish. Secondly, even estimation of household expenses admitted by the lady member of the family, can at best, be a yardstick to consider the acceptability of the expenses incurred by the assessee in the AY in question. Considering the amount admitted by the lady member of the family in the year 2003 and also household goods referred to by the AO, in the years under consideration, the amounts returned by the assessee on household expenses cannot be rejected as unbelievable or unreasonable. Considering in the overall light and on the basis of absence of any adverse material on record, we find no justification with the AO to estimate the household expenses over and above those returned by the assessee in the respective assessment years. We, therefore, set aside the order of the CIT(A), and direct the AO to delete the additions. Appeals of the assessee are allowed.

Summary

Issues:
Appeals against CIT(A) orders for asst. yrs. 1998-99 to 2000-01 by two assessees from the same family concerning addition for low household withdrawals.

Analysis:
In all six appeals, the main issue revolves around the addition made by the AO for low household withdrawals. The case involves two assessees from the same family, and the appeals are consolidated due to a common issue. The AO estimated household expenses higher than declared by the assessees for the respective assessment years. The AO based the additions on the standard of living observed during a search operation, where certain household articles and statements indicated higher expenses. The CIT(A) upheld the AO's estimation as fair and reasonable, leading to the appeals before the ITAT.

For the asst. yr. 1998-99, the AO added Rs. 55,000 to the assessee's income and divided the balance between the brother of the assessee. Similarly, for the subsequent years, additions were made at Rs. 22,500 and Rs. 19,000 for the asst. yrs. 1999-2000 and 2000-01, respectively. The assessees argued before the CIT(A) that the estimation was incorrect, emphasizing their ordinary lifestyle and separate accounting for expenses like telephone and electricity. They contended that the search operation's findings did not reflect their lifestyle accurately for the relevant assessment years.

The ITAT analyzed the case, emphasizing the need for the AO to provide substantial evidence to reject the assessees' claimed household expenses. The AO's reasons for the additions were deemed general, lacking specific evidence of lavish spending or discrepancies in the declared expenses. The ITAT noted that the search operation's findings and the lady member's statement from 2003 should not be the sole basis for estimating expenses for earlier years. Ultimately, the ITAT found no justification for the AO's estimations and directed the deletions of the additions for all the assessment years in question.

The ITAT's decision applied to both assessees, leading to the allowance of all the appeals. The judgment emphasized the importance of concrete evidence and specific findings to support additions in cases involving estimated household expenses.