2016 (1) TMI 1325 - AT - Income Tax

Addition made on account of low drawings - explanation to nature and source of such expenditure - Held that - In this case even though there has been search in the case of the assessee but no material whatsoever has been brought on record which may prove that the assessee has actually incurred the expenditure as has been estimated by the AO. The AO in this case has merely estimated the drawing of the assessee; therefore,it is of the view that the Revenue has not discharged his onus until and unless the Revenue has discharged his onus the assessee cannot be expected to explain the nature and source of such expenditure. On this basis itself, the addition in each of the assessment years cannot be sustained otherwise also noted that in this case the AO has simply taken the withdrawal made by Sri Mahaveer Singh, i.e., the assessee, ignoring the fact that the assessee was residing in Hotel Neelam along with his wife, Smt. Aruna Sankhla, sons Sri Hement Raj Sankhla, Sri Harsh Raj Sankhla and daughter, Sarita Shankla who were the partners thereof. On the basis of the chart if the drawings of all the family members who were putting together are taken into account the drawings of all the family members were much more than the drawings estimated by the AO. On this basis also, the addition is liable to be deleted. The total disallowance in each of the assessment years as has been depicted in the facts stated above whereas from ₹ 147087 to 18640 the estimate made by the AO should have been reduced by this expenditure or the AO should have considered this expenditure also, therefore, it is of the view that the estimate made by the AO is merely an estimate which is not based on the facts of the case. - Decided in favour of assessee.

Summary

Issues involved:
1. Addition of household expenses in each assessment year.

Detailed Analysis:
1. The appeals were filed by the assessee against the order of CIT(A) concerning the additions made in respect of household expenses for various assessment years. Both parties agreed to dispose of the appeals based on the facts for the assessment year 2005-06.

2. The Assessing Officer (AO) estimated the household withdrawals for each assessment year based on the amounts withdrawn by the assessee. The AO made additions for low household withdrawals in each year, ignoring the family drawings and the fact that the assessee and family members were residing in a hotel where certain expenses were disallowed in the hands of the firm.

3. The CIT(A) confirmed the AO's order for each assessment year. However, the ITAT Jaipur noted that no evidence was found during a search in the assessee's group to prove that the drawings were less than the actual expenditure incurred by the assessee. The ITAT emphasized that the AO cannot make additions solely on an estimated basis under section 69C without proving the actual incurring of expenditure by the assessee.

4. The ITAT observed that the AO had not considered the total expenditure of the assessee and family members residing together in the hotel. The ITAT found that the AO's estimate was not based on facts, as the AO did not account for the disallowed expenses in the firm's hands. Consequently, the ITAT set aside the CIT(A)'s order for each assessment year and deleted the additions made on account of low household drawings.

In conclusion, the ITAT allowed the appeals filed by the assessee, emphasizing the importance of proving actual expenditure before making additions and considering all relevant facts and expenditures in such cases.