2017 (9) TMI 1398 - AT - Income Tax

Assessment made u/s. 143(3) - AO disallowing the loss under the head Other sources and addition for low withdrawals for household expenses - Section 14A applicability - denial of natural justice - Held that - CIT(A) has not given proper chance to the assessee s counsel to substantiate its case and wrongly affirmed the assessment made u/s. 143(3) by the AO disallowing the loss under the head Other sources and addition for low withdrawals for household expenses failing to appreciate that when Section 14A not applicable to the factual matrix of the present case. The disallowance of interest expenses on account of the copies of bank statements of two accounts with Bank of Baroda, sanction letter dated 03.09.2009 of one loan of ₹ 1.9 crores were found to be illegible and because of this reason alone, the disallowance was made. The above finding is against the principles of equity, justice and good conscience and instead another opportunity should have been provided to the assessee to file copies of the evidence on record as the copies of bank statements and loan sanction letter were illegible because of poor print quality of the printer from which the clerk took the printouts. CIT(A) has failed to appreciate the evidences regarding the use of the loan taken from bank and has wrongly disallowed the amount based on assumptions and surmises. Also find cogency in the submissions of assessee that the estimation of living expenses of ₹ 20,000/- per month in F.Y. 2011-12 to be regarded as too low for a family of three cannot be regarded as based on any principle of law or common sense as such amount of money is enough for a family of three to live a simple and decent lifestyle when there are no expenses for rent education and such other like expenses. As the assessee is in a possession of all the documents/ evidences to substantiate its case before the Ld. CIT(A), which has not been considered by the Ld. CIT(A) while deciding the appeal, which is now deserve to be appreciated. - Assessee s appeal is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of loss under "Other sources" and addition for low withdrawals for household expenses.
2. Disallowance of interest expenses due to illegible documents.
3. Estimation of living expenses and failure to consider family members' income for household expenses.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) affirming the assessment disallowing a loss under "Other sources" and adding for low withdrawals for household expenses. The appellant argued that Section 14A was not applicable to the case. The disallowance was based on illegible bank statements and loan documents, which the appellant claimed were due to poor print quality. The Tribunal found that the appellant was denied a proper chance to present evidence. The Tribunal set aside the issues for the Commissioner to decide afresh after considering all evidence and giving a fair opportunity to the appellant.

2. The Tribunal noted that the disallowance of interest expenses was solely due to the illegibility of documents, which the appellant attributed to poor print quality. The Tribunal found this reasoning against equity and justice, emphasizing the need for the appellant to have another opportunity to submit clear evidence. The Tribunal directed the Commissioner to reassess this issue after considering all documents and giving the appellant a fair chance to be heard.

3. Regarding the estimation of living expenses and the failure to consider family members' income for household expenses, the Tribunal found the Commissioner's decision lacking in proper appreciation of evidence. The Tribunal emphasized the importance of considering all relevant factors, including the income of family members contributing to household expenses. The Tribunal directed the Commissioner to reevaluate this aspect, ensuring that all evidence is considered and the appellant is given a fair opportunity to present their case.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the issues for the Commissioner to reexamine after providing the appellant with a fair opportunity to present evidence and be heard.