2019 (9) TMI 254 - AT - Income Tax

Unexplained cash deposits in the banks - Income from undisclosed sources - availability of cash in hand out of past four financial years withdrawals - estimation of household expenditure - HELD THAT - As during the last four years, the assessee has withdrawn ₹ 81,17,425 from his bank account which has been claimed in support of opening cash in hand. AO has however estimated household expenses at ₹ 5 lacs per annum totaling to ₹ 20 lacs and the balance ₹ 61,17,425 has been accepted as fair and reasonable towards the source of cash in hand. Therefore, the differential amount of ₹ 61,32,575 has been added and brought to tax as unexplained in the hands of the assessee. Estimation of household expenditure, it has been an admitted position by the Revenue that the same have been met largely out of pension and earnings from the shop. Given the standard of living of the assessee and his family, and the fact that assessee s daughter is doing MBBS Course and the son is studying in JNNIT, Jaipur, AO has estimated household expenditure of ₹ 5 lacs per annum - in view of the overall facts and circumstances of the case, we find that the estimation of household expenditure is on a higher side and it would be fair and reasonable to restrict the same to ₹ 2 lacs per annum as against ₹ 5 lacs per annum. Regarding the contention of the AR that only withdrawals for last 4 years have been considered by the AO and not the earlier years withdrawals, we are unable to accede to the said contention of the ld AR as the lower authorities have been fair and reasonable to consider the availability of cash in hand out of withdrawals from last four years and it would be highly unrealistic that cash withdrawals made in years prior to last four years are kept by the assessee as cash in hand given that the assessee is a merchant navy official mostly on high seas and his expenses being met by the employer and thus not having the necessity to hold cash in hand. Further, he maintains account with banks and thus having regular banking facility and the cash can be withdrawn as and when needed by his family which in any case, as per assessee s own submission doesn t have very high cash requirement for meeting household expenditure. Aailability of cash in hand out of past four financial years withdrawals of ₹ 81,17,425, after considering the household expenditure at ₹ 2 lacs per annum as against ₹ 5 lacs determined earlier, comes to ₹ 73,17,425 and thus, the balance addition of ₹ 49,32,575 is hereby confirmed as remain unexplained and the assessee gets relief of ₹ 12,00,000. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Legality and justification of the addition of ?61,32,575 as income from undisclosed sources.
2. Reasonability of the availability of opening cash balance of ?1,22,50,000 claimed by the assessee.
3. Estimation of household expenditure by the Assessing Officer (AO).

Detailed Analysis:

1. Addition of ?61,32,575 as Income from Undisclosed Sources:
The AO observed substantial cash deposits and property transactions in the assessee's bank accounts, requiring an explanation for the sources. The assessee claimed the cash deposits were from salary income earned between 1995 to 2012 and withdrawals from bank accounts during 2004 to 2012. The AO, however, estimated household expenses at ?5 lakhs per year for the last four years, reducing the available cash balance and treating ?61,32,575 as income from undisclosed sources. The CIT(A) confirmed this addition, stating the assessee could not link the cash withdrawals to the deposits and relied on case laws to support the AO's findings.

2. Reasonability of the Availability of Opening Cash Balance of ?1,22,50,000:
The assessee argued that the withdrawals from his bank accounts over several years justified the opening cash balance. The AO and CIT(A) rejected this claim, noting that it was unrealistic to assume the entire amount withdrawn over 17 years was available as cash in hand. The CIT(A) found that the assessee's explanation lacked concrete evidence and that the withdrawals would have been used for household expenses and investments in the business. The Tribunal found the household expenditure estimation of ?5 lakhs per annum excessive and reduced it to ?2 lakhs per annum, thereby adjusting the unexplained income to ?49,32,575 and granting relief of ?12,00,000 to the assessee.

3. Estimation of Household Expenditure:
The AO estimated household expenses at ?5 lakhs per annum based on the assessee's social status and children's education. The assessee contended that this estimation was excessive, given that his expenses were largely borne by his employer while he was on high seas. The Tribunal agreed with the assessee, reducing the household expenditure estimate to ?2 lakhs per annum. The Tribunal reasoned that the daughter's MBBS course fees should not be included in the household expenses for the last four years as she started the course in June 2012. The Tribunal also noted that the assessee's banking habits and the family's moderate cash requirements did not support the AO's higher expenditure estimate.

Conclusion:
The Tribunal partly allowed the appeal, confirming the addition of ?49,32,575 as unexplained income and granting a relief of ?12,00,000 to the assessee. The Tribunal found the AO's estimation of household expenditure excessive and adjusted it to a more reasonable amount, thereby reducing the unexplained income. The Tribunal also upheld the lower authorities' decision to consider only the last four years' withdrawals for cash in hand, rejecting the assessee's claim for earlier years' withdrawals.