2017 (9) TMI 659 - AT - Income Tax

Estimation of income - disallowance of expenses - addition in respect of inadequate personal expenses - Held that - Assessee neither appeared before the A.O. nor filed any books of accounts or any details in respect of the business carried out by the assessee and also various expenses claimed by him. The A.O. on the basis of material available as per the return filed by the assessee, assessment is completed u/s 144 of the Act. Even the Ld. CIT(A) has given as many as opportunities to the assessee, however, the assessee has appeared on 22.11.2011 and filed a written submission requesting him to dispose of the appeal on merits. The Ld. CIT(A) in his order, categorically observed that the assessee has not filed any evidence except producing some ledger extracts in respect of the expenses claimed by the assessee. He has also observed that only basing on ledger extracts, no expenditure can be allowed and therefore confirmed the order of the A.O. Thus in the interest of justice, the entire issues has to go back to the A.O. to decide the case based on the books of accounts and relevant evidences. Therefore, we set aside the order passed by the Ld. CIT(A) and send it back to the A.O. to adjudicate this issue de-novo in accordance with law. In so far addition made by the A.O. the A.O. has observed that, it is seen from the assessee s balance sheet that the assessee is showing liability to the extent of ₹ 21,00,383/- as cash creditors in the name of assessee s relatives and his accountant, etc. In the absence of any evidence to prove that these liabilities are genuine, the same are treated as assessee s income and accordingly addition was made. On appeal, Ld. CIT(A) sustained ₹ 9,20,383/- by considering the written submissions filed by the assessee. Before us, the Ld. Counsel for the assessee has submitted that before the A.O., no details are filed. Even before the CIT(A), only written submissions are filed. No correct facts are coming out and submitted that the issue may be remitted back to the A.O. for de-novo consideration.

Summary

Issues:
Estimation of income, disallowance of expenses, addition in respect of inadequate personal expenses, addition made in respect of cash creditors.

Estimation of Income:
The appellant, an individual deriving income from trading, filed a return of income declaring total income of ?2,03,726 for the assessment year 2008-09. The Assessing Officer (A.O.) completed an ex-parte assessment under section 144 of the Income Tax Act, estimating the profit margin at 2% of the total turnover, resulting in an addition of ?6,39,425 to the total income. Additionally, the A.O. disallowed 20% of the claimed expenses amounting to ?4,87,691 and added it to the total income. The A.O. also considered inadequate personal drawings and added ?66,881 to the total income. The appellant appealed before the CIT(A), who confirmed the A.O.'s order regarding the disallowance of expenses and inadequate drawings.

Disallowance of Expenses:
The CIT(A) upheld the A.O.'s decision to disallow 20% of the claimed expenses due to lack of evidence supporting the expenditures. The appellant's failure to provide necessary details and evidence led to the confirmation of the disallowance by the CIT(A).

Inadequate Personal Expenses:
Regarding inadequate personal drawings, the A.O. considered the appellant's expenses as insufficient based on living costs, adding ?66,881 to the total income. The CIT(A) reduced the additional amount to ?54,881, considering an adequate monthly expense of ?16,000 for four persons. The appellant argued that the CIT(A)'s decision contradicted a previous high court ruling.

Addition in Respect of Cash Creditors:
The A.O. added ?21,00,383 as cash creditors to the appellant's income due to lack of evidence proving the liabilities' genuineness. The CIT(A) sustained ?9,20,383 of the addition. Both parties requested a de-novo consideration by the A.O., leading to the appeal being allowed for statistical purposes.

The ITAT Visakhapatnam directed the A.O. to reexamine the issues based on books of accounts and relevant evidence, setting aside the CIT(A)'s decision. The judgment emphasized the importance of substantiating expenses and income with proper documentation to avoid disallowances and additions to the total income.