2024 (11) TMI 1374 - AT - Income Tax

Disallowance u/s 36(1)(iii) - interest free advance by assessee - assessee has paid interest on various parties and has not charged any interest on the money landed by assessee - HELD THAT - Neither the assessee has paid interest on short borrowings nor charged any interest on the advances given for short periods. Rather the assessee was having running account with both the parties, therefore, there was no justification for making disallowance of interest expenses. In the result, first part of ground No. 1 of appeal is allowed. Addition on account of low household expenses - AO made addition by taking view that total household expenses withdrawal or assessee and his family which is not sufficient for four members in the family in Y category of city - assessee vehemently argued that the assessee has shown sufficient withdrawals for his household expenses, the assessee has withdrawn Rs. 78,400/-. The wife of assessee has also shown withdrawal of Rs. 60,000/-. The family of assessee consists himself, his wife, two minor children one children is school going and assessee resides in the house owned by his father. Assessee s withdrawal shown by assessee are sufficient to meet day-to-day expenses - HELD THAT - As no benefit of withdrawal of Rs. 78,400/- is allowed by Assessing Officer. The assessee is living in the house owned by his father. Thus, considering the overall facts and circumstances of the case, in my view, the total household expenses of four members of a family is not less than Rs. 30,000/- per month in City Light, Surat. Thus, the assessee is allowed benefit of Rs. 1.20 lacs plus ( ) his own withdrawal of Rs. 78,400/- and rest of the addition to the extent of Rs. 2,81,600/- is sustained. In the result, second part of ground No. 1 is partly allowed.

Summary

Issues:
Appeal against order of National Faceless Appeal Centre, Delhi for assessment year 2018-19 - Addition of Rs. 5,30,895 - Delay in filing appeal before Tribunal - Disallowance of interest expenditure under section 36(1)(iii) - Addition on account of household expenses.

Analysis:
The appeal was filed against the order of the National Faceless Appeal Centre, Delhi, for the assessment year 2018-19, which arose from the assessment order passed by the Assessing Officer under section 143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961. The assessee raised grounds challenging the addition of Rs. 5,30,895 and the passing of an ex parte order by the CIT(A). The delay in filing the appeal before the Tribunal was explained by the assessee, stating it was unintentional and due to pursuing alternative remedies for rectification. The assessee argued for condonation of the delay, emphasizing the bona fide belief in seeking rectification.

On the merits of the case, the disallowance of interest expenditure under section 36(1)(iii) was contested by the assessee, claiming that interest-free funds were available and the loans were for business purposes. The Revenue Authority's disallowance was challenged, presenting financial statements and explanations. The Tribunal found that the disallowance was unjustified as the assessee had running accounts with the parties involved, thus allowing the appeal on this ground. Regarding the addition on account of low household expenses, the Assessing Officer estimated expenses at Rs. 40,000 per month, making an addition of Rs. 4.20 lakhs. The assessee argued that their withdrawals were sufficient for day-to-day expenses, and the Tribunal considered the family size and living arrangements to allow a partial benefit on this ground.

The Tribunal, after considering the submissions and orders of lower authorities, allowed the appeal in part. The delay in filing the appeal was condoned due to the assessee's pursuit of alternative remedies. The disallowance of interest expenditure was overturned, and a partial benefit was granted concerning the addition on account of low household expenses. The appeal was partly allowed by the Tribunal, with detailed reasoning provided for each ground of appeal.

In conclusion, the Tribunal's judgment addressed the issues raised by the assessee comprehensively, considering both procedural aspects and the substantive grounds of appeal. The decision provided a detailed analysis of the facts and legal arguments presented by both parties, resulting in a partial allowance of the appeal based on the merits of the case.