2021 (9) TMI 741 - AT - Income Tax

Addition u/s 153C - absence or presence of incriminating material - Addition of household expenses - HELD THAT - On going through the order of the AO we do not find mention of any incriminating material relating to household expenses to have come in his possession to show that the same were being incurred from undisclosed sources. Except for the fact that the son of the assessee stated that household expenses were taken care of by his mother, the assessee, and the fact that nature of certain expenses incurred were brought to light as being incurred on children s education, servants, cars maintained etc., nothing else finds mention in the order of the AO or even the CIT(A), showing that household expenses were incurred by the assessee way beyond her disclosed sources. There is no mention as to how he arrived at the conclusion of undisclosed expenses being to the tune of ₹ 25, 000 /- per month, which fact is affirmed by the LD. CIT(A) also when he states that there was no basis for the estimation made by the AO. We find that the son of the assessee, the searched person, had given details of various household expenses and justified the source of the same, giving details and source of payments of various expenses, but there is no mention in the orders of the authorities below as to how the expenses stated to have been incurred did not justify the lifestyle of the assessee. It is but evident that there was no incriminating material pertaining to and justifying the addition made in the present case. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under Section 153C of the Income Tax Act.
2. Validity of additions made on account of undisclosed household expenses.
3. Requirement of incriminating material for additions under Section 153C.
4. Basis and estimation of household expenses by the AO.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) under Section 153C of the Income Tax Act:
The appeals were filed against the orders of the Commissioner of Income Tax (Appeals) relating to multiple assessment years, where the AO assumed jurisdiction under Section 153C following a search action at the residential premises of the assessee's son. The AO assessed the income for six years prior to the search year under Section 153C and for the search year under Section 143(3). The assessee challenged the jurisdiction of the AO to make additions based on the argument that the assessment under Section 153C should be based on incriminating material.

2. Validity of additions made on account of undisclosed household expenses:
The AO made additions for undisclosed household expenses based on the lifestyle and household details provided by the assessee's son. The AO estimated the household expenses at ?25,000 per month, leading to an annual addition of ?3,00,000. The Commissioner of Income Tax (Appeals) restricted this addition to ?1,50,000, considering the totality of facts but without a clear basis for the estimation.

3. Requirement of incriminating material for additions under Section 153C:
The Tribunal emphasized that any addition under Section 153C must be based on incriminating material found during the search. The AO did not mention any such material in his order. The Tribunal referred to the Supreme Court's decision in CIT vs Sinhgad Technical Education Society, which mandates that additions under Section 153C should be based on seized material pertinent to the assessment year in question. The Tribunal found no incriminating material justifying the addition for household expenses, leading to the deletion of the addition.

4. Basis and estimation of household expenses by the AO:
The Tribunal noted that the AO's estimation of ?25,000 per month for household expenses lacked a clear basis. The Commissioner of Income Tax (Appeals) also acknowledged the absence of a basis for the AO's estimation but still reduced the addition to ?1,50,000. The Tribunal found that the details provided by the assessee's son about household expenses and their sources were not adequately countered by the AO. The Tribunal held that both the AO and the Commissioner of Income Tax (Appeals) resorted to mere estimation without factual justification, leading to the deletion of the addition.

Conclusion:
The Tribunal allowed the appeals for the assessment years 2012-13, 2013-14, 2016-17, and 2017-18, directing the deletion of additions made on account of undisclosed household expenses due to the absence of incriminating material and unjustified estimation by the AO. For the assessment year 2018-19, the Tribunal also directed the deletion of the addition, finding no basis for the estimation and noting that the assessment was framed under Section 143(3) without incriminating evidence. The appeals were allowed or partly allowed accordingly.