2015 (7) TMI 533 - AT - Income Tax

Addition on low and unexplained House Hold exp. - Held that - From the reply of Sh. Vijender Mann it is evident that he was giving answers in present tense and, therefore, we find considerable force in the submission of ld. counsel for the assessee that the statement refers to the position as obtaining on 23-9-2009 when admittedly the children were not college going. However in AY 2006- 07 the children were school going as is evident from the certificate filed in the PB. These certificates are photo copies only and were not furnished before the AO and were filed for the first time before the ld. CIT(A). Ld. CIT(A) has not considered these certificates. Therefore, the authenticity of these certificates needs to be examined at the AO level. These certificates clearly negate the very basis for making addition of ₹ 3,09,000/- which was primarily made on the basis of house-hold expenses being ₹ 10,000/- per month and children education at ₹ 2 lacs. Further, keeping in view the extensive agricultural activities carried out by assessee s husband, his statement that he had sold buffalo and tuda for more than ₹ 1 lacs cannot be doubted particularly when at the time of taking the statement the AO did not ask for the same assessee should be allowed further credit of ₹ 1 lakk from the addition made for house hold expenses over and above the credit to be allowed in respect of educational expenses, which were only ₹ 33,830/- (Rs. 17,515/- 16,315/-) and not ₹ 2 lakhs subject to verification of the certificates from D.A.V. School (supra). The matter is restored to the file of AO for verification of the certificates from DAV school contained at pages 22 & 23 of the PB. - Decided partly in favour of assessee for statistical purposes. Addition on interest - Held that - Bare perusal of the noted explanation makes it evident that Sh. Vijender Mann and assessee had current account and the entire agricultural produce was sold through assessee on which assessee got commission.In respect of other advances also there were business dealings with the parties and, therefore, amounts were lying in different accounts on account of commercial expediency. Hence, no addition was called for on account of debit balances lying with customers on notional basis for not charging interest on their account. We may further observe that there is no finding recorded by lower revenue authorities as to whether the advances lying with customers were out of borrowed funds or out of own funds. Therefore, we are of the opinion that lower revenue authorities were not justified in making addition on this count. We, therefore, delete the addition in question.- Decided partly in favour of assessee. Disallowance of shortage of paddy - Held that - Loss on account of drying of paddy cannot be denied merely because in earlier year assessee had not claimed the same. It is a natural phenomenon and, therefore, on account of drying of paddy loss in weight is bound to occur. We are in agreement with ld. CIT(A) that as far as the opening balance is concerned, no loss on this count can be allowed because, if there was any such loss, it should have been claimed in earlier year. However, in respect of purchase of paddy during the year, we are of the opinion that it would meet the ends of justice if 5% loss on the purchase of paddy during the year is allowed on account of moisture less of the paddy. In the result - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition on account of low household withdrawals.
2. Addition of interest on advances to the assessee's husband and other farmers.
3. Disallowance of shortage of paddy loss claimed by the assessee.

Issue-wise Detailed Analysis:

1. Addition on Account of Low Household Withdrawals:
The Assessing Officer (AO) noticed that the assessee had shown household withdrawals of only Rs. 10,500/-. The AO recorded the statement of the assessee's husband, who indicated that household expenses and children's education costs were significantly higher. The AO concluded that the assessee had unexplained household expenses of Rs. 3,09,000/-. The CIT(A) confirmed this addition. The assessee argued that the children's education expenses were overestimated and provided school fee details to support this claim. The Tribunal found merit in the assessee's argument and noted that the AO did not verify the school certificates, which indicated lower educational expenses. The Tribunal restored the matter to the AO for verification of the certificates and allowed partial credit for the sale of buffalo and tuda. The issue was partly allowed for statistical purposes.

2. Addition of Interest on Advances to the Assessee's Husband and Other Farmers:
The AO observed that the assessee did not charge interest on debit balances from her husband and other farmers while paying interest on borrowed funds. The AO added notional interest of Rs. 23,700/- and Rs. 81,905/- based on the decision in CIT Vs. Abhishek Industries Ltd. The CIT(A) upheld this addition. The assessee contended that the advances were made out of business expediency and were a common practice in trade. The Tribunal found that the advances were part of regular business dealings and there was no evidence that these advances were made out of borrowed funds. Therefore, the Tribunal deleted the addition of notional interest.

3. Disallowance of Shortage of Paddy Loss Claimed by the Assessee:
The assessee claimed a shortage of paddy weighing 43.61 quintals due to drying and pilferage. The AO rejected this claim, stating that no such shortage was claimed in previous years and no evidence was provided. The CIT(A) agreed with the AO, noting that the assessee used this claim to avoid taxes. The Tribunal acknowledged that loss due to drying is a natural phenomenon and allowed a 5% loss on the paddy purchased during the year. However, no loss was allowed on the opening balance of paddy, as it should have been claimed in the previous year. The issue was partly allowed.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions for the AO to verify certain claims and adjustments made by the Tribunal. The Tribunal provided a balanced approach by partially accepting the assessee's contentions and directing further verification where necessary.