1994 (11) TMI 168 - AT - Income Tax

Assessing Officer, Household Expenses, In This Behalf, Income From Undisclosed Sources, Unexplained Expenditure

Summary

Issues Involved:

1. Addition of Rs. 1,50,000 towards unexplained expenses on the marriage of the assessee's daughter.
2. Addition of Rs. 42,000 towards unexplained household expenditure.
3. Estimation of income from house property.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,50,000 towards unexplained expenses on the marriage of the assessee's daughter:

The appellant, an individual and Managing Director of D. S. Construction Pvt. Ltd., did not account for marriage expenses of his daughter, except for Rs. 83,304.60 paid to Hotel Taj, debited to his father's account in the company's books. The Assessing Officer (AO) added Rs. 1,50,000, citing disbelief that only hotel expenses were incurred for the marriage of a person of the assessee's status. The AO estimated the expenses considering the social status and financial position of the assessee, noting the lack of details on other customary expenses like clothes, jewelry, and presents.

The CIT(A) upheld this addition, agreeing that the marriage was performed with great pomp and show, justifying the estimated expenses.

During the hearing, the assessee's counsel argued that no expenditure was incurred by the assessee, and the AO's estimate lacked basis. The counsel also emphasized that no evidence of excess cash or expenses was found during a search conducted three weeks after the marriage. Additionally, the AO relied on the statement of the assessee's wife without confronting the assessee, which was argued as illegal.

The Tribunal noted that the assessee failed to provide detailed replies to the AO's specific queries about the marriage expenses. The evasive responses led to an adverse inference by the AO. The Tribunal agreed with the AO's estimation, citing the jurisdictional High Court's decision in Madan Lal v. CIT, which supports the AO's approach in estimating reasonable expenditure when the assessee provides inadequate information.

The Tribunal concluded that the AO was justified in estimating the unexplained expenditure on the marriage and upheld the addition of Rs. 1,50,000.

2. Addition of Rs. 42,000 towards unexplained household expenditure:

The AO observed that the assessee's family included his wife and three children, with monthly withdrawals shown as Rs. 2,000. The AO found that two children were studying outside Delhi, with Rs. 4,000 per month sent for their expenses, based on the statement of the assessee's wife. Consequently, the AO added Rs. 42,000 towards unexplained household expenditure.

The CIT(A) upheld the addition, noting that the household expenses shown by the assessee were grossly understated, considering the status of the assessee and the prevailing high prices.

The assessee's counsel argued that the addition was based solely on the statement of the assessee's wife, which was not supplied to the assessee. Alternatively, it was argued that the amount was sent from the office, and hence, no addition was justified.

The Tribunal found that the statement relied upon was of the assessee's wife, not a third party, and the fact that the children were studying outside Delhi was already in the assessee's knowledge. The assessee failed to provide evidence of the amount being sent from the office. Therefore, the Tribunal upheld the addition of Rs. 42,000.

3. Estimation of income from house property:

The assessee challenged the estimation of income from house property, arguing that the Assessing Officer took the Annual Letting Value (ALV) at 10% of the Gross Total Income (GTI). The assessee submitted a computation showing the ALV based on municipal value, house tax, and repairs, resulting in a net income for 8 months and a 1/3rd share for each co-owner.

The Tribunal noted that the assessee himself had shown income from house property, estimating the ALV at 10% of GTI. The AO also took the ALV at 10% of GTI without considering the actual ALV. Therefore, the Tribunal set aside this issue to the AO, directing him to compute the ALV of the self-occupied property. If the ALV is below 10% of GTI, the actual ALV should be taken, and if it exceeds 10% of GTI, it should be restricted to 10% of GTI.

Conclusion:

The appeal filed by the assessee was allowed in part, with the Tribunal upholding the additions towards unexplained marriage and household expenditure while setting aside the issue of income from house property for recomputation by the AO.